The amendments are aimed at tackling challenges to the timely rescue of distressed firms
IBBI has made presentations to the corporate affairs ministry regarding the amendments
ndia’s corporate rescue regime, the five-year-old Insolvency and Bankruptcy Code (IBC), is set for another makeover early next year. The ministry of corporate affairs and bankruptcy rule maker the Insolvency and Bankruptcy Board of India (IBBI) are preparing amendments to IBC, which will be placed before Parliament in the coming budget session.
The amendments being drafted are aimed at tackling challenges in timely rescue of distressed companies, said a person with knowledge of the matter. They seek to address shortcomings highlighted by a parliamentary panel in August, such as low recovery rate in many cases and delays in resolution proceedings.
IBBI has made presentations to the ministry regarding the scope of the amendments and the contours of the legislative changes needed are being studied. “We have got the ideas. Some changes to regulations and some amendments to the Code would be needed. The effort is to have the Bill ready for the budget session," the person mentioned above said on condition of anonymity.
This amendment is expected to be a major milestone in the evolution of the bankruptcy code, which has undergone several changes in step with changing economic realities since its adoption in 2016. The next amendment will seek to “re-imagine" the Code to make it more effective in terms of its original goals, including time-bound resolution of bankrupt businesses and maximization of the value of the debtor’s assets.
Some concerns raised by the parliamentary panel led by Bharatiya Janata Party leader Jayant Sinha have already been addressed but some recommendations need legislation, experts said.
The government has amended the regulations by providing for a Swiss challenge method, as also limiting the number of times the request for proposals for bids can be amended to only one, explained L. Viswanathan, partner at law firm Cyril Amarchand Mangaldas. This is expected to result in more timely bid submissions, he said.
“Several of the other recommendations (of the Parliamentary panel) pertain to institution building and do not require a change in the law itself for implementation except the changes to IBC to enable resolution plans for whole or part of the business," Viswanathan said. The committee had suggested it was not always that bidders for bankrupt businesses may be interested in the entire business. Accordingly it suggested amendments to the law to allow resolution of even part of the assets.
The first and foremost amendment IBC needs is distinguishing between the type of corporate debtor, those which require to undergo the corporate insolvency resolution process, and those that can straightaway be proceeded with liquidation, said Daizy Chawla, senior partner at law firm Singh & Associates.
IBC prescribes for conclusion of bankruptcy resolution within 330 days, including the time taken for litigation. Another beneficial amendment would be to define haircut limits, which the committee of creditors can approve in any resolution plan, Chawla said.
The institutions that have been mandated various roles and responsibilities under the IBC will need to evolve to keep up with the pace and demand for resolution of stress and defaults that the system has, said Viswanathan of Cyril Amarchand Mangaldas.