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The Centre proposes to go in for a significant overhaul of the Insolvency and Bankruptcy Code (IBC) 2016 and has invited public comments on more than two dozen changes to the over six-year old framework, which was the country’s first comprehensive law to address the insolvency of corporate persons and individuals.
The latest changes proposed relate 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 last date for sending comments on the weblink provided by the Corporate Affairs Ministry (MCA) is February 7. Indications are that the IBC amendment Bill will be moved in the second leg of the upcoming Budget session of Parliament.
Key proposals
Among the key proposals now proposed include setting up of an e-platform that may provide for a case management system, automated processes to file applications with the AAs, delivery of notices, enabling interaction of IPs with stakeholders, storage of records of CDs undergoing the process, and incentivising participation of other market players in the IBC ecosystem.
The proposed e-platform may also allow regulators and the Adjudicating Authority (AAs) exercise better oversight over their respective domains of functioning through the consolidated information available on the e-platform.
The Centre has also proposed complete revamp of the waterfall mechanism and statutorily provide an equitable scheme of distribution of proceeds received in resolution plan(s) through a separate waterfall mechanism in the CIRP. The objective is to make the distribution process fairer and more equitable for all the stakeholders.
As per this scheme, creditors will receive proceeds up to the CD’s liquidation value for their claims in the order of priority provided in Section 53. Any surplus over such liquidation value will be rateably distributed between all creditors in the ratio of their unsatisfied claims. Finally, any remaining amount or further surplus would be distributed to the shareholders and partners of the corporate debtor, as the case may be.
Functioning of IBC
To strengthen the functioning of the IBC, the MCA has proposed changes to the fast-track mechanism, expand the scope of pre- packaged insolvency framework to categories beyond MSMEs; Increasing reliance on the record submitted with the Information Utilities during the admission process; empower AAs to bar errant promoters to deter them from committing repeated or substantial contraventions and certain measures to improve outcomes in real estate cases.
In the case of real estate, 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, can 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 resolution.
The last time MCA invited public comments on strengthening IBC was in November-December 2021. At that time comments were invited on issues related to the corporate insolvency resolution and liquidation frameworks, and the introduction of a cross-border insolvency framework.
After receipt of public comments in response to such invitation, MCA is now proposing further changes to bolster the frameworks under the Code.
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