10 Things To Know About Latest Amendments To Insolvency And Bankruptcy Code (IBC)

The Union Cabinet has approved overhaul of Insolvency and Bankruptcy Code, 2016 through Insolvency and Bankruptcy Code (Second Amendment) Bill, 2019.

10 Things To Know About Latest Amendments To Insolvency And Bankruptcy Code (IBC)

The Insolvency and Bankruptcy Code (IBC), 2016, has already been amended thrice till date

The Union cabinet, chaired by Prime Minister Narendra Modi, on Wednesday cleared amendments to the Insolvency and Bankruptcy Code (IBC) to ease the insolvency resolution process and promote ease of doing business. Aimed at streamlining of the insolvency resolution process, the IBC Amendment Bill seeks to protect last-mile funding and boost investment in financially-distressed sectors, an official release said. The development comes at a time the government seeks to strengthen the country's financial sector, marred by huge bad assets and bank frauds, to support economic growth. The IBC (Second Amendment) Bill, 2019 is likely to be introduced in the current session of the Parliament. This marks a fourth amendment to the government's flagship Insolvency and Bankruptcy Code which came into force in 2016.

Here are 10 things to know about amendments to Insolvency and Bankruptcy Code (IBC):

  1. The latest changes to the IBC ring-fence the successful bidders of stressed assets from the risk of criminal proceedings against offences committed by previous management and promoters, according to an official statement. 

  2. In other words, successful bidders will be provided more immunity against any risk of criminal proceedings for offences committed by previous promoters of companies concerned. 

  3. The bill also proposes a threshold for financial creditors to prevent frivolous triggering of corporate insolvency. In other words, this will ensure that bankruptcy is not invoked for small amounts. 

  4. The amendments are aimed at providing more protection to bidders participating in the recovery proceedings and in turn boosting investor confidence in the country's financial system.

  5. The provisions allow the corporate debtors to continue as a going concern by clarifying that the licenses, permits, concessions and clearances cannot be terminated or suspended during the moratorium period.

  6. "Approval by the cabinet to provide immunity to successful bidders under IBC is a great boost to IBC," said Sapan Gupta, partner and national head of banking and finance at law firm Shardul Amarchand Mangaldas."This is a positive and timely step and will increase confidence among prospective buyers of stressed assets."

  7. The government has in the past few months announced a series of steps to restore the health of the country's financial sector to achieve its goal of making India a $5-trillion economy. The country's economy expanded 5 per cent in the quarter ended September 30, marking the lowest pace of growth in more than six years. 

  8. In a separate development, the cabinet approved Partial Credit Guarantee Scheme for purchase of high-rated pooled assets from financially sound non-banking financial companies (NBFCs) - also known as shadow banks - by state-run banks.

  9. Easier lending rules are aimed at enabling NBFCs to get better access to funds. NBFCs have been key drivers of lending growth in India, with their consolidated balance sheet worth Rs 28.8 lakh crore ($400 billion) in 2018-19, according to RBI data. 

  10. The Insolvency and Bankruptcy Code replaces laws such as the Sick Industrial Companies Act (SICA Act) and the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act (SARFAESI Act), shifting the control of recovery process to creditors from borrowers.