Government Proposes Slew Of Changes To Insolvency Law

To further strengthen the insolvency law regime, the government on Wednesday proposed a raft of changes, including fast-tracking the process, expanding the scope of the pre-packaged framework and developing an electronic platform with minimal human interface.
    
The Insolvency and Bankruptcy Code (IBC), which came into force in 2016, provides for a market-linked and time-bound resolution of stressed assets. The Code has already undergone various amendments.
    
"To strengthen the functioning of the IBC, changes to the code are being considered in relation to the admission of corporate insolvency resolution process (CIRP) applications, streamlining the insolvency resolution process, recasting the liquidation process, and the role of service providers under the Code," the ministry said in a notice.
    
Among other changes, the corporate affairs ministry has suggested developing a state-of-the-art electronic platform that can handle several processes under the Code with minimum human interface.
    
"It is being considered that this e-platform may provide for a case management system, automated processes to file applications with the AAs, delivery of notices, enabling interaction of IPs (Insolvency Professionals) with stakeholders, storage of records of CDs (Corporate Debtors) undergoing the process, and incentivising participation of other market players in the IBC ecosystem," the notice said.
    
The ministry has also proposed redesigning the Fast-Track Corporate Insolvency Resolution Process (FIRP) to allow financial creditors to drive the insolvency resolution process for a CD outside of the judicial process while retaining some involvement of the Adjudicating Authority (AA) to improve the legal certainty of the final outcome.
    
"It is being considered that the provisions dealing with FIRP may be amended to provide that unrelated FCs of a CD may select and approve a resolution plan through an informal out-of-court process and involve the AA only for its final approval (or a moratorium, if needed).
    
"Insolvency resolution through this procedure will be available for CDs with such asset size as notified by the central government. Further, the resolution plan approved through this procedure will have the same sanctity as a regular plan approved during the CIRP (Corporate Insolvency Resolution Process)," the notice said.
    
Certain changes with respect to the resolution process for real estate projects have also been proposed.
    
"When an application is filed to initiate the CIRP in respect of a CD who is the promoter of a real estate project, and the default pertains to one or more of its real estate projects; the AA, at its discretion, shall admit the case but apply the CIRP provisions only with respect to such real estate projects, which have defaulted.
    
"Accordingly, such projects shall be recognised as distinct from the larger entity for the limited purpose of the resolution," it noted.
    
Another proposal is to enable a resolution professional to transfer the ownership and possession of a plot, apartment or building to the allottees with the consent of the CoC (Committee of Creditors).
    
"It is observed that allottees may, during a CIRP or a project-specific resolution process as being considered herein, request ownership and possession of a completed unit of the real estate project, which cannot be permitted during the moratorium under the Code," the notice said.
    
Further, the ministry said, it is being considered that the right of a CD to propose an IRP should be done away with and in such instances, the IRP concerned should be appointed by the AA on the recommendation of the IBBI.
    
Mani Gupta, Partner at Sarthak Advocates & Solicitors, said the proposed amendments to the Code are a step in the right direction.
    
"Keeping the Fast-Track CIRP outside the judicial process may help in quicker disposal of the CIRP, however, care will have to be taken to ensure that interests of stakeholders other than the financial creditors are duly protected within the framework provided in the IBC. A limited role for adjudicating authority in approving the final plan is perhaps intended for that," he added.