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Insolvency and Bankruptcy Code Second Amendment 2019

Insolvency and Bankruptcy Code Second Amendment 2019

Insolvency and Bankruptcy Code, 2016 offers a time-bound procedure for settling insolvency in companies and among individuals. Insolvency and Bankruptcy Code (Second Amendment) Act 2019 has been passed to amend the Insolvency and Bankruptcy Code 2016. The Second Amendment is quite different from the earlier resolution systems as it shifts the responsibility to the creditor to commence the insolvency resolution process against the corporate debtor. It encompasses all individuals, companies, Limited Liability Partnerships (LLPs) and partnership firms.

Insolvency and Bankruptcy

Insolvency occurs when individuals or companies are unable to repay their outstanding debt. Bankruptcy is a situation whereby a court of proficient jurisdiction has announced an entity or individual insolvent. It is framed to provide solutions and protect creditors’ rights. The Government of India (GoI) implemented the Insolvency and Bankruptcy Code (IBC) to strengthen the laws related to insolvency and bankruptcy. It is also introduced to tackle Non-Performing Assets (NPA), a problem that has been pulling the Indian economy down for years. The committee has recommended financial support to MSMEs, treating beneficiaries under real estate project as financial creditors, reducing voting thresholds of the committee of creditors (CoC) and among others through certain provisions of IBC.

Objectives of the IBC

  • To unite and amend all current insolvency laws in India
  • To make things easier and accelerate the Insolvency and Bankruptcy Proceedings in India
  • To defend the interest of creditors including stakeholders in a company
  • To stimulate the company in a time-bound manner
  • To encourage entrepreneurship
  • Provide financial assistance to the creditors and increase the credit supply to increase the economy
  • To create a strategy for the banks, financial institutions or individuals
  • Intensification of the value of assets of corporate persons

Outcome of the Bill

  • The code has been amended to remove bottlenecks, streamline the CIRP and provide protection till last-mile funding to increase investments among financially affected sectors
  • Additional limits have been introduced for financial creditors to prevent a large number of Corporate Insolvency Resolution Process (CIRP).
  • Ensuring that the debtor’s core business values are not lost. To make sure that the licences and permits are not terminated, suspended or not renewed during the moratorium period.

Sections Amended

The Amendment Bill pursues to implement Sections 5(12), 5(15), 7, 11, 14, 16(1), 21(2), 23(1), 29A, 227, 239, 240 and introduce a new Section 32A.

Amendment of Section 5

Section 5 excludes the provision to clause (12) of Section 5 of the Code, to make clear that the insolvency commencement date is the date of admission of an application for initiating corporate insolvency resolution process.

Amendment of Section 7, Sub-Section (1)

The amendment of Section 7 of the Code is incorporated to incorporate certain provisions detailing a minimum threshold for certain classes of financial creditors for initiating insolvency resolution procedure. 

Amendment of Section 11

The amendment of Section 11 of the Code is implemented to make clear that a corporate debtor should not be barred from filing an application for introduction of corporate insolvency resolution procedure against other corporate debtors.

Amendment of Section 14

Section 14  is implemented to explain that clearances, quota, license, permit, registration, concession or a similar grant or right cannot be dismissed or banned during the Moratorium period. 

The above amendment in the IBC is explained as:

Section 2 states that there is no law stoppage or any other forms whatsoever on the grounds of insolvency in any forms of law, for the time being. It is subjected with no payment dues for its renewal during the freezing period.

“Sub-Section (2A) states that the supply of goods or services shall not be terminated during the period of suspension, except if such corporate debtor has not paid dues arising from such supply during the moratorium period or in such circumstances.

The Sub-Section (3)(a) states that transaction under such criteria shall be notified to the Central Government.

Amendment of Section 16

Section 16 of the Code is amended to provide an insolvency resolution professional should be assigned on the same day of admission of the application for initiation of the insolvency resolution process.

  • The Bill amends for the criteria which bans certain persons from tendering resolution plan.
  • It offers that this criterion will not apply and if such applicant is a financial entity and not related party to the debtor with certain exceptions.
  • It indicates that such restriction will apply if such guarantee has been referred by the creditor and stays unpaid.

Amendment of Section 23

Section 23 of the Code is amended in order to facilitate the “resolution professional” to handle business during the temporary period. The period shall be calculated from the expiry of the corporate insolvency resolution process until the appointment of a liquidator.

Amendment of Section 29A

Section 29A is amended with two clauses to endorse the completion of the transaction of the equity shares under the specific prescribed process. 

Addition of new Section 32A

The Sector 32 prevailed way for the introduction of a new Section 32A, to offer that the liability of a corporate debtor for an offence committed before the commencement of the corporate insolvency resolution process shall cease under certain circumstances.

Inclusion of Section 227 upon Liquidation Procedures

Section 227 of the Code is included to clarify that the insolvency and liquidation procedures for financial service providers are performed with such modifications and in such manner should be specified.

Eligibility Criteria

The following persons are not permitted to get an application to start on the corporate insolvency resolution process:

  • A corporate debtor already undergoing the process of corporate insolvency
  • A corporate debtor who has completed corporate insolvency resolution process twelve months before the date of making the present request
  • A financial creditor or a corporate debtor who has breached the resolution plan twelve months before the date of making of a request
  • A corporate debtor related to a liquidation order has been made

The Gazette notification can be accessed below: