The amendments to be proposed in the Parliament are based on inputs from two rounds of public consultations
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The government is set to propose fresh amendments to the Insolvency and Bankruptcy Code (IBC) in the monsoon session of Parliament seeking to cut delays in admitting bankruptcy petitions in tribunals and speed up rescuing distressed companies, said a person familiar with the development.
The amendments are based on inputs from two rounds of public consultations.
The monsoon session usually begins sometime in July. Two key elements that would be introduced in the bankruptcy code through the proposed amendments. One is a framework for cross-border insolvency resolution, and the other more effective ways of dealing with improper pre-bankruptcy transactions of the distressed company that affect the interests of stakeholders, said the person, who spoke on condition of anonymity.
At present, the proposals for amendments are in inter-ministerial consultation stage and they will need cabinet approval before tabling in Parliament, the person added.
The amendments will also seek to address the concerns raised by a Parliamentary standing committee on finance about the performance of IBC—delays in resolving bankruptcy cases and the steep haircuts taken by lenders while agreeing for restructure distressed businesses.
An email sent to the ministry of corporate affairs spokesperson on Tuesday remained unanswered at the time of publishing.
The Insolvency and Bankruptcy Board of India (IBBI), the regulator that frames bankruptcy rules and regulations, has in recent months come out with several rule changes aimed at cutting delays in admission of cases in tribunals. These include a set of proposals for making credit information supply more efficient to speed up the process. IBBI has identified that the availability of reliable information establishing a payment default is crucial to timely admission of bankruptcy petitions in courts, given that promoters of defaulting firms would try to delay the process fearing imminent loss of control of the company.
One of the ways of improving the value of assets available for restructuring a bankrupt firm is to recover any asset which has been ‘wrongly alienated’ --a technical term for diverted or hived off -- in the pre-bankruptcy period. The amendments provide for a review of past conduct of the distressed companies over a longer pre-bankruptcy period than allowed now and take corrective steps in the case of transactions harming the interests of the stakeholders.
At present IBC allows resolution professionals to move tribunals to annul an undervalued transaction of the bankrupt company dating back upto two years from the date of admission in the case of related party transactions and upto one year in other cases.
Experts said that making the review of past transactions would help in improving the outcome of IBC proceedings. “...Enhancing the review of pre-bankruptcy transactions of the distressed entity will aid in this," said Pavan Kumar Vijay, founder of consulting firm Corporate Professionals.