Insolvency and Bankruptcy Code, 2016, Amendment – March 2020

The Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “The Code”), is a pivotal legislation designed to address insolvency in contemporary circumstances. A parliamentary bill, once ratified by both houses and the President of India, forms a binding law for stakeholders. However, given the dynamic nature of economic and social scenarios, amendments are necessary to ensure that laws remain relevant. The Code, being relatively young, has undergone several amendments to address prevailing issues and streamline processes.

The latest significant amendment to The Code occurred in 2019, with updates extending to March 2020. The Insolvency and Bankruptcy Code (Amendment) Ordinance, 2019, aimed to clarify certain provisions and enhance the law's coherence. This article examines these amendments and provides a brief analysis.

Section 5(12) – Insolvency Commencement Date

Section 5(12) of The Code defines the insolvency commencement date. Initially, this was the date when the Adjudicating Authority admitted the insolvency application. Originally, a proviso added complexity, stating that if an Interim Resolution Professional (IRP) was not appointed by that time, the commencement date would be when an IRP was appointed. This led to confusion, prompting the removal of this proviso. Now, the commencement date strictly remains the date of application admission.

To standardize the process, Section 16(1) was amended to require the IRP’s appointment on the same day as the application admission by the Adjudicating Authority, instead of within 14 days as previously required.

Section 7 – Initiating Corporate Insolvency Resolution Process (CIRP)

Section 7 empowers financial creditors to apply for insolvency against a corporate debtor for unpaid dues. Initially, creditors could file individually or with others, leading to a backlog of insolvency applications against real estate companies. An amendment introduced a proviso requiring joint applications by financial creditors described in Section 21(6A) (a) and (b), with at least one hundred homogeneous creditors or one-tenth of the total creditors, whichever is lower.

If an application is not admitted due to non-compliance, petitioners have 30 days to rectify and reapply; otherwise, the application will be withdrawn. This amendment aims to streamline the corporate insolvency resolution process.

Section 11 – Restrictions on Filing for Insolvency

The original Section 11 specified entities ineligible to file insolvency applications, such as:

Corporate debtors undergoing CIRP.
Corporate debtors completing CIRP within twelve months.
Corporate debtors applying in violation of an approved resolution plan within twelve months.
Corporate debtors liable for liquidation.

The amendment expands the scope of a corporate debtor to include corporate applicants, allowing them to initiate insolvency against other corporate debtors. This provides more precise financial structuring opportunities.

Section 14 – Moratorium

Section 14 mandates a moratorium period declaration, prohibiting specific actions against a debtor once insolvency is approved. An added explanation now ensures licenses or registrations aren't canceled solely due to a debtor undergoing CIRP, unless the license caused the initial default.

Sub-section 2A empowers the IRP or RP to maintain essential goods or services supply for continued debtor operations, provided dues are settled. The government’s consultation scope under Section 14(3) expanded to include any authority deemed necessary, thus broadening the framework for effective resolution management.

Section 23 – Role of Resolution Professional

Section 23 mandates that the RP continues managing debtor operations during CIRP until a resolution plan is executed or liquidation is ordered. This amendment solidifies the RP’s role in financial health maintenance.

Section 32A – Discharge from Pre-commencement Offences

Newly added Section 32A protects corporate debtors from liabilities arising from pre-insolvency offences, provided the resolution plan includes management changes devoid of former promoters or individuals under investigation. Prosecution against a debtor, if any, is discharged upon resolution execution, aligning with corporate governance standards.

These amendments signify crucial enhancements for operational clarity within The Code. Moreover, the removal of Section 1(2) ostensibly from Jammu and Kashmir delineates geographical modifications. As legal frameworks evolve, further amendments and regulatory updates are anticipated to suit the changing economic landscape.

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Frequently Asked Questions

Common questions about IBC Amendment.

The Insolvency and Bankruptcy Code (Amendment) Ordinance, 2019 aimed to remove certain ambiguities in some provisions of the Insolvency and Bankruptcy Code, 2016, and bring more coherence to the law. It introduced amendments to clarify and streamline various aspects of the insolvency resolution process.

The amendment removed the proviso from the definition of insolvency commencement date in Section 5(12), which earlier stated that if an Interim Resolution Professional (IRP) was not appointed when the application was admitted, the commencement date would be the date of IRP's appointment. Now, the commencement date is solely the date on which the Adjudicating Authority admits the insolvency application.

The amendment introduced a proviso in Section 7, requiring a minimum of 100 financial creditors or one-tenth of the total number of financial creditors (whichever is lower) to file an application jointly against real estate companies. This was done to prevent multiple individual applications from financial creditors.

The amendment widened the scope of the term "corporate debtor" in Section 11 through explanations. It clarified that a corporate debtor includes a corporate applicant and that a corporate debtor undergoing insolvency proceedings can still initiate an application against another corporate debtor.

The amendment added an explanation to Section 14(1) stating that licenses, registrations, or concessions issued to the corporate debtor by the government or relevant authorities cannot be terminated solely due to the insolvency proceedings, unless such licenses were the cause of the default. It also introduced Section 14(2A), allowing for the continuation of critical goods or services necessary for the corporate debtor's operations during the moratorium period.

The amendment added a proviso to Section 23, requiring the Resolution Professional to continue managing the corporate debtor's operations until either the resolution plan is implemented or the liquidation process is ordered by the Adjudicating Authority.

The amendment introduced Section 32A, which provides immunity to the corporate debtor from prosecution for offenses committed prior to the insolvency commencement, subject to certain conditions related to the new management's involvement in the offenses.

The amendment omitted the proviso of Section 1(2), which removed the Union Territory of Jammu and Kashmir from the scope of Part III of the Insolvency and Bankruptcy Code, 2016.

Yes, the article suggests that with ongoing scrutiny over the legal analysis and implementation of the Insolvency and Bankruptcy Code, further amendments, new regulations, and rules can be expected in the future to meet current requirements.

The amendments aimed to remove ambiguities, bring coherence, clarify provisions, streamline processes, and address various aspects of the insolvency resolution process under the Insolvency and Bankruptcy Code, 2016, based on practical considerations and evolving needs.