Insolvency and Bankruptcy Code: IBC panel bats for flexibility and accountability for stakeholders – The Economic Times–31.03.2018

The 14-member insolvency law committee set up by the government to review the insolvency and bankruptcy code has made several significant recommendations to address concerns arising out of the implementation of the landmark reform on crucial aspects ranging from interim finance, regulatory nods, bidding process and eligibility of bidders to voting by lenders and moratorium on litigation, multiple government sources familiar with the proposals of the committee told ET NOW on the condition of anonymity. ET NOW reported details of the fine-print on Friday.

“The insolvency law committee has submitted its recommendations to the government and the Ministry of Corporate Affairs is expected to shortly release the detailed report for a brief consultation process, following which a draft bill will be introduced,” said one of the sources.

“The committee has proposed to relax the existing interim finance norms under the code to provide a fillip to the stressed assets space. Currently, interest on interim finance is calculated only till the liquidation commencement date and they have recommended that the interest should be calculated for one year either after the liquidation commencement date or until repayment, whichever is earlier and distributed in priority. The committee also feels the RBI should provide flexible norms for banks and ARCs to encourage facilitation of interim finance which is vital to take care of the costs incurred in the insolvency process and keep the corporate debtor as a going concern ‘, sources said.

“Globally, the terms of interim finance are negotiated on a case to case basis and the negotiated terms are approved by the creditors. The recommended one year extension on interest priority is welcome, but may not be sufficient depending on individual cases,” said Abizer Diwanji, Partner and National Leader, Financial Services, EY.

The code is currently silent on timelines for regulatory nods for approved bids and hence the committee has highlighted that a period should be provided for obtaining the requisite approvals from regulators.

When it comes to the Competition Commission of India (CCI), the committee has sought specific regulations for quicker approval in consultation with the competition watchdog. The committee has also clarified that the intent of the IBC is not to bar trading of the debtor company during the resolution process as trading would lead to better price discovery.

However, since the committee of creditors do not have specific powers on suspension of trading , the committee refrained from recommending any specific amendment to the code, government sources added. But on the other hand, the committee has proposed powers for the NCLT to direct the IBBI to propose a replacement in case the resolution professional steps down in the middle of an ongoing process.

On the voting process of the committee of creditors (CoC) , the committee has recommended reduction in the voting threshold from the existing 75% to 66% for critical actions like approval of the resolution plan and appointment and replacement of the resolution professional.

“This would avoid liquidation of companies in scenarios when the margin of voting is too close to 75%. Also, 25% may be too easy to get a voting block in certain cases,” said an insolvency expert on the condition of anonymity.

The committee also added that for the withdrawal of a corporate resolution plan post admission by the NCLT, 90% of CoC approval would be required.

According to government sources,in the absence of a specific definition under the code, the committee felt that the term “persons acting jointly or in concert” for the purpose of disqualification of resolution applicants under Section 29 A covered an extremely wide range of persons if the Sebi regulations were relied upon.

Since disqualification on such grounds could stand against applicants, thereby, reducing the pool of bidders, the committee recommended that the phrase be deleted altogether from Section 29 A .

The government could also consider adding more categories to “financial entities” to facilitate the entry of more bidders, the report added. The committee clarified that amendments to section 29 A would be applicable to all cases where the resolution plan has not been submitted.

Section 14 of the IBC provides for a moratorium on fresh lawsuits or pending litigation against the corporate debtor once the resolution process begins and the committee felt that the moratorium provision could be abused by promoters who provide personal guarantees for loans of corporates.

Consequently, the committee concluded that the scope of the moratorium may be restricted to the assets of the corporate debtor only and that action could be taken against assets of guarantors to the debt of the corporate debtor. Sources also added that in order to avoid multiple IBC proceedings by creditors on old or time-barred debts and restrict legal claims, the Limitation Act should be applied to the code.

via Insolvency and Bankruptcy Code: IBC panel bats for flexibility and accountability for stakeholders – The Economic Times

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