On January 18, 2023, Ministry of Corporate Affairs issued a notice inviting comments from public on changes being considered to the Insolvency and Bankruptcy Code, 2016 (“IBC” or “Code”) aiming to enhance the efficiency of the bankruptcy process and expanding the scope of the framework.

Background

Prior to the commencement of the Code, the legislative framework in India overseeing with the insolvency and restructuring procedures of corporate entities, partnership firms and individuals was very complex and fragmented across multiple legislations namely, Companies Act, 1956; Sick Industrial Companies (Special Provisions) Act, 1985; Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002; Recovery of Debts due to Banks and Financial Institutions Act, 1993, etc. The presence of multiple laws, forums and complexities resulted in delays in the timely resolution of the distressed entities, partnership firms or individuals, which further lead to the devaluation of the assets of the borrower, making insolvency negotiations redundant.

In 2016, India took a landmark step in this direction with the enactment of a robust, modern and sophisticated insolvency framework, the Insolvency and Bankruptcy Code, 2016 which laid down a collective mechanism for resolution of insolvencies in the country by maintaining a delicate balance for all stakeholders to preserve the economic value of the process in a time bound manner.

Key changes under consideration

Use of technology in the IBC ecosystem: To streamline the interaction between Ministry of Corporate Affairs (“MCA”), Adjudicating Authority (“AA”), Insolvency and Bankruptcy Board of India (“IBBI”), Information Utilities (“IU”) and service providers which currently operate on separate technological platforms, it is being considered that an electronic platform may be provided for a case management system, automated processes to file applications, deliver notices, enable interaction with stakeholders, store records and incentivise participation of other market players in the IBC ecosystem.

Admission of Corporate Insolvency Resolution Process (“CIRP”) applications:

• Increase reliance on the record submitted with the IUs during the admission process
• Making it mandatory to admit an application filed under section 7 where occurrence of a default is established
• Restricting the right of the promoters to propose an interim resolution professional
• Empowering the AA to impose penalties for violations of the Code

Streamlining the insolvency resolution process:

• Rethinking the fast-track CIRP
• Expanding the applicability of the Pre-packaged Insolvency Resolution framework
• Improving outcomes in real estate cases
• Reimagining the consideration of the resolution plan and the manner of distribution of the proceeds from the same during the CIRP
• Reinstating CIRP during the liquidation process
• Intermingling the assets of the Corporate Debtor (“CD”) and its guarantors
• Resolving inter-dependent entities
• Improving recoveries for operational creditors in liquidation
• Clarity in the treatment of security interests created by statutes
• Disclosure of valuation estimate of assets in the information memorandum
• Certain categories of Operational Creditors (“OC”) to honour the agreement with the CD for remaining useful life of the agreement
• Protection of a resolution applicant post implementation of the resolution plan concerning civil liabilities
• Clarity on the computation of voting share and treatment of abstention
• Incentivising interim finance providers
• Appointment of Administrator by the Central Government
• Power to exempt a class or classes of corporate persons from provisions of this Code
• Individual insolvency related proposals to provide better coordination

Recasting the liquidation process:

• Direct dissolution of the CD where conducting liquidation process may not be feasible
• Eliminating duplication of activities between the CIRP and the liquidation process
• Role of the creditors during the liquidation process to take decisions, supervise and support the liquidator’s functioning
• Replacement of the liquidator by voting
• Stay on the continuation of proceedings during the liquidation process
• Realisation of security interest by the secured creditor
• Exercise of the right to relinquish or realise secured assets where more than one secured creditor holds a pari passu charge

Role of service providers and other stakeholders: To improve the regulatory process regarding service providers, it is being considered that IBBI may be empowered to register and regulate a special class of valuers for rendering all valuation-related services during the processes envisaged under the Code.

Comments are sought from public on the changes being considered which may be submitted online by 5:30pm on February 7, 2023 at the below mentioned link – https://ibbi.gov.in/webfront/discussion_paper/invitation_public/