The Cabinet on Wednesday approved seven amendments to the Insolvency and Bankruptcy Code (IBC) to enforce strict timelines for the rescue of companies. The amendments are aimed at filling the critical gaps in the corporate rescue framework specified in the Code.
The amendments bring greater emphasis on the need for time-bound disposal at application stage. The amendments set 330 days as the maximum time allowed for bankruptcy resolution, including for litigation and other judicial process. The financial creditors' votes to be cast in accordance with the decision approved by the highest voting share, the amendment says.
Another amendment is to specify that the bankruptcy resolution or liquidation arrived at under the Code is binding on central, state and local governments, to whom the bankrupt firm may owe dues.
The cabinet also decided that the IBC will have provision for dissenting creditors to get minimum liquidation value to be applicable retrospectively.
The Cabinet has also approved of the extension of the term of the 15th Finance Commission up to November 30.
Cyril Shroff, managing partner at law firm Cyril Amarchand Mangaldas said the amendments would clear several road blocks that are holding up resolution under the Code.
"Vesting with the CoC the ability to take into account commercial considerations in respect of distributions under the resolution plan; making the resolution plan binding on all stakeholders and comprehensive restructuring through schemes will help foster flagging investor confidence," Shroff said.
About the amendments, Uday Bhansali, President (Financial Advisory) at consultancy Deloitte India said dissenting creditors and operational creditors have to accept liquidation value or sum offered in the resolution plan, whichever is higher.
"Allowing all possible corporate actions as part of the proposed resolution plans can also help save time and effort for applicants.
"Clarity that a CoC does not have to go through the motions in case a resolution is unlikely and go for liquidation earlier is also a welcome step," Sanjeev Krishan, Partner and Leader (PE & Deals) at consultancy PwC India said.
Risk consulting firm Kroll's MD and Head of South Asia Tarun Bhatia said keeping 330 days as the maximum time allowed for bankruptcy resolution, including for litigation and other judicial processes, would ensure that there is a timely resolution.
With inputs from agencies.