While the amendments will help ring-fence buyers, aspects like cross-border insolvency remain to be addressed
The recent amendments to the Insolvency and Bankruptcy Code (IBC) approved by the Union Cabinet can go a long way in addressing some of the gaps in the resolution process. Crucially, the proposed Bill has sought to provide a clean slate to buyers of stressed assets, by shielding them from prosecution for offences by previous promoters. By way of insertion of Section 32A in the Code, the amendment seeks to provide immunity to the corporate debtor and its assets, from an offence committed prior to the commencement of the insolvency process. In other words, it seeks to ring-fence the corporate debtor and property from offences committed by the previous management or promoters. At a time when there have been growing concerns over investigative agencies initiating action against companies after the completion of the resolution process (Bhushan Power and Steel), the amendment offers much needed clarity and relief to prospective buyers. At the same time, the Bill requires the corporate debtor or other persons to extend cooperation to investigating authorities. Importantly, the immunity will only apply in cases where the resolution plan has resulted in a change in management or control of the corporate debtor. While the amendment seeks to release the corporate debtor from the liability of the offence, it continues to hold the concerned persons responsible for the offences and they can be prosecuted.