NEW DELHI: The much-awaited amendments to the Insolvency and Bankruptcy Code (IBC), including those aimed at expediting the resolution process, and introduction of cross-border and group insolvency regimes, may undergo a review by the incoming government before being taken to Parliament for approval, official sources told FE on condition of anonymity.
A draft Bill prepared by the ministry of corporate affairs (MCA) during the last leg of the Narendra Modi 2.0 government had included many of these changes, but the new coalition government would likely take a relook at the all the provisions, the sources added. This would inevitably mean that the Bill would not be tabled in the Budget session of the new Lok Sabha in July, as planned earlier.
Among the changes that could be delayed because of the review are creditor-led resolution plan (CLRP) mechanism designed for out-of-court settlements, and removal of the interim moratorium provision for personal guarantors’ assets.
“It’s (the Bill) top priority for the ministry (of corporate affairs). Though there have been several amendments in IBC already, there’s a need to speed up the resolution process further,” an official had earlier told FE.
However, due to a coalition-government now set to be in power, the government would now revisit the IBC, and the proposed changes, the sources said.
There are chances that the new corporate affairs minister would be from an ally of the ruling of the BJP in the National Democratic Alliance. In the outgoing government, the ministries of finance and corporate affairs were headed by Nirmala Sitharaman.
The MCA had prepared a blueprint of possible amendments into the IBC, way back in January 2023. It’s because many feel the Code has not been able to provide resolution to stressed assets in an efficient and timely manner. A recent report by the Insolvency and Bankruptcy Board of India (IBBI) had revealed that on an average, the Corporate Insolvency Resolution Process is taking 679 days to conclude as against the standard timeline of 330 days.
Any delay in the corporate insolvency resolution process (CIRP) under the code erodes the stressed-asset’s value and minimises recovery for the creditors, so it’s important for all the stakeholders to expedite decision making, Ravi Mittal, chairperson, IBBI had said in the report.
To strengthen the IBX, not only intense procedural or infrastructural reforms are required in the direction to reduce the grave impact of delays on recoveries, but also reforms for bringing the overall effectiveness of the Code are required to be catered to, say experts.
Anjali Jain, partner, Areness said that apart from tackling procedural irregularities for tackling delays, operational efficiency of the Code may be increased by introducing capacity building programs for resolution professionals and developing cadre of experts for resolving complex entities, establishing specialised benches for insolvency, and mandating insolvency petition filing for high exposure cases before NPA declaration.
Sukrit Kapoor, Partner, King Stubb & Kasiva said that the issue of personal guarantors availing undue benefit of interim moratorium to fend off claims and ongoing litigations deserves a closer look. “Intentional abuse of the process by defaulting personal guarantors only to delay other recovery proceedings is a serious concern and has been highlighted by many High Courts as well,” he said.
Anoop Rawat, partner, Shardul Amarchand Mangaldas & Co said that there is an urgent need to address pain areas under the Code, which includes quicker admission into CIRP based on record of default. “These changes will go a long way to improve the working of IBC as an effective institutional mechanism for resolution of debts,” he said.
Source: The Financial Express
