improving-the-ibc

Why is it in the news ?

Amendments to Insolvency and Bankruptcy Code will reduce uncertainty, inspire confidence in the resolution process.

Amendments Cleared by Cabinet:

  1. Ring-fence successful bidders from criminal proceedings against offences committed by previous promoters.
  2. Raise the minimum threshold for initiating the resolution process, and have clarified that licences, permits and clearances cannot be suspended during the moratorium period.

Salient Features of IBC

  1. It applies to both individuals and companies.
  2. Earlier it provided for a 180-270 days period to resolve insolvency but now the deadline of 330 days has been set for completion of the corporate insolvency resolution process (CIRP), including litigation and other judicial processes.
  3. It provides immunity to the debtors from claims of resolution by creditors during this period of resolution.
  4. It provides for a common platform of debtors and creditors of all classes to resolve insolvency.
  5. The Code gives the highest priority to those who have brought interim finance to meet the costs of resolution or liquidation, followed by dues to workers for the past two years and dues to secured creditors in equal priority.
  6. Employees other than workmen, and unsecured creditors and operational creditors are further down the line in the priority of receiving resolution or liquidation proceeds.

 

Source: Mint

 

 

 

Source: Mint

Laws prior to IBC

Some of the insolvency laws which failed to make an impact.

  • Sick Industrial Companies (Special Provisions) Act, 1985 (SICA)
  • The Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (SARFAESI)

Significance of the move

  1. The amendments aim to remove the bottlenecks in insolvency resolution, streamline Corporate Insolvency Resolution Process and protect last-mile funding to boost investment in the financially distressed sectors.
  2. The move will help safeguard corporate debtors, protect last-mile funding, boost investments in financially distressed sectors, speed up the corporate insolvency resolution process (CIRP) and strengthen the overall IBC framework.
  3. This will attract more bidders to come forward and bid for stressed assets by boosting their confidence in the IBC process.