Finance minister Piyush Goyal on Monday introduced a Bill to amend the insolvency law that would recognise home buyers as financial creditors and allow genuine promoters of micro, small and medium enterprises to bid for their stressed firms. The Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018, also allows withdrawal of a case after admission by the adjudicating authority, but not without the approval of 90% of creditors. The Bill is meant to replace an ordinance promulgated in June, once it gets a presidential nod after being cleared by both Houses of Parliament.
To encourage resolution rather than liquidation, the voting threshold for approving a resolution plan has been trimmed to 66% from 75% earlier. For routine decisions, the voting threshold is fixed at 51%. Some Opposition parties, however, alleged the changes to the Insolvency and Bankruptcy Code (IBC) were intended to “help one industry”.
Rejecting such an allegation, Goyal said when the IBC was first introduced in Parliament, many members thought that further “fine-tuning” was required and, hence, a committee (under corporate affairs secretary Injeti Srinivas) was set up to suggest amendments.
The amendment Bill has been brought in Parliament, based on the recommendations of the panel, the finance minister said. Goyal said the IBC was initially introduced when the banking sector was going through a serious crisis because of indiscriminate lending by banks between 2008-2014.
According to the Bill, pure-play financial entities like banks would be exempted from the disqualification provision on account of holding stake in or acquiring stressed firms earlier. “A resolution applicant holding an NPA (non-performing asset) by virtue of acquiring it in the past under the IBC, 2016, has been provided with a three-year cooling-off period, from the date of such acquisition. In other words, such NPA shall not disqualify the resolution application during…the three-year grace period,” the government said in a statement.
The ordinance provides for a mechanism to allow participation of security holders, deposit holders and all other classes of financial creditors beyond a certain number to attend the committee of creditors meetings through authorised representations. “Taking into account the wide range of disqualifications contained in Section 29(A) of the Code, the ordinance provides that the resolution applicant shall submit an affidavit certifying its eligibility to bid. This places the primary onus on the resolution applicant to certify its eligibility,” the release said.