Finance Minister Nirmala Sitharaman speaks at Lok Sabha, in New Delhi on Thursday. (ANI Photo)
Finance Minister Nirmala Sitharaman speaks at Lok Sabha, in New Delhi on Thursday. (ANI Photo)

Lok Sabha passes amendments to bankruptcy code

  • The Rajya Sabha has already passed the bill and with its passage in the lower house, the Insolvency and Bankruptcy Code is set to be amended
  • The Bill restores the higher rights that secured lenders have over operational creditors on the proceeds of sale or liquidation of the defaulting company

NEW DELHI : The Lok Sabha on Thursday passed the Bankruptcy Code (Amendment) Bill, 2019 that sets a 330-day deadline for rescuing companies in distress to fast track cleaning up of bad assets in India’s banking system.

The Bill also restores higher rights that secured lenders have over operational creditors on the proceeds of sale or liquidation of the defaulting company.

Rajya Sabha had passed the Bill on Monday. It now requires Presidential ascent to become a law.

The clarification relating to the priority that secured creditors have in the asset sale or liquidation proceeds is expected to have a bearing on bankrupt companies like Essar Steel Ltd. It is expected to help secured creditors of Essar Steel Ltd, led by State Bank of India. They have challenged in the Supreme Court a ruling by the National Company Law Appellate Tribunal that Essar Steel’s operational creditors have to be treated on a par with financial creditors at the time of settling claims.

Finance and corporate affairs minister Nirmala Sitharaman said, while moving the Bill for passage in the Lower House, that the changes were aimed at ensuring timely resolution and at bringing more clarity on various provisions. Responding to the debate on the bill, Sitharaman later said liquidation was not the sole agenda of the bankruptcy code.

The amendments will also aid quick decision-making in the case of bankrupt entities such as property developers, which have a large number of operational creditors, including homebuyers.

Litigation among various parties, including shareholders, lenders and potential buyers, had so far complicated the process of salvaging several insolvent companies under the Code that came into force in 2016. The Code so far allowed a maximum of 270 days for clearing a rescue plan but courts have taken the lenient approach of excluding the time spent on legal challenges from this time frame. The new timeline of 330 days include the time spent on litigation too. If a rescue plan is not thrashed out before the end of this time period, the defaulting company will go into liquidation.

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