Government Committee To Review New Insolvency Code
Government constitutes committee to review the Insolvency and Bankruptcy Code
The government has constituted an Insolvency Law Committee to take stock of the functioning and implementation of the new Insolvency and Bankruptcy Code (IBC).
The committee, comprising 14 members, will identify issues that may be impacting the efficiency of the corporate insolvency resolution regime, said the Ministry of Corporate Affairs in a release on Friday. The committee will also make “suitable recommendation to address the identified issues, enhance efficiency of the processes prescribed under the new law and ensure the implementation of the code is effective,” said the notification.
The committee will include persons from the Ministry of Corporate Affairs (MCA), the Insolvency and Bankruptcy Board of India (IBBI) as well as experts from corporate law firms and accountancy firms. It will submit its recommendation within 2 months from its first meeting.
This review comes at a time when large critical cases are being resolved under the IBC. Earlier this year, the Reserve Bank of India (RBI) had asked lenders to refer 12 large stressed accounts for resolution under the new bankruptcy code. This includes cases like Jaiprakash Associates, Essar Steel and Bhushan Steel. In some of the cases, the timeline for resolution is coming to a close. If a resolution plan is not successfully approved for these companies, they will then go into liquidation.
Overall, more than 300 insolvency cases have already been admitted by the National Company Law Tribunal (NCLT) under the new regime, which came into force in December last year.
Last week, the Supreme court opined that certain amendments to the code may be necessary. This has been triggered by the plethora of cases filed before the apex court to allow parties, who have initiated insolvency process, to settle out of court and terminate the resolution process mid-way. The framework, as it stands today, does not allow for such settlements.
Another point of debate has emerged from the Jaiprakash Associates case where the Supreme Court passed orders beyond the framework of the IBC to ensure interests of homebuyers were protected. Homebuyers were a category of persons that did not find recourse under the insolvency law. This case led the Insolvency and Bankruptcy Board of India (IBBI) to introduce a third category of creditors to enable them to raise claims once the insolvency process has been initiated. However, there is still no clarity on where they stand in the liquidation hierarchy.
Finally, some experts have questioned whether old promoters should be allowed to submit resolution plans as part of the IBC process. The intent of the insolvency law is maximisation of value of assets of corporate debtors and so, such assets have to handed over to a trust-worthy person, MS Sahoo, chairman of Insolvency and Bankruptcy Board of India told BloombergQuint in an interview earlier this week.
A committee to review the implementation of the IBC will help policy makers understand and correct any practical problems that have emerged, said independent advocate Amir Arsiwala.
In the year since the IBC has been in force, practitioners have already encountered several challenges in its implementation. This move is well thought out as it will give an opportunity to the policy makers to understand the practical implications and setbacks of the new law.Amir Arsiwala, Independent Advocate