March 7, 2020 5:00:54 am
The Lok Sabha on Friday passed the Insolvency and Bankruptcy Code (IBC) (Second Amendment) Bill 2019, which seeks to ring-fence new management from offences committed by the erstwhile management. The Bill was first tabled in Lok Sabha on December 12, 2019, but was referred to the Standing Committee on Finance before being reintroduced in Parliament on Friday. The Bill is set to replace an ordinance which had brought provisions of the Bill into effect on December 28.
The government moved to protect successful bidders under the IBC after the Enforcement Directorate attached assets of Bhushan Power and Steel Ltd. after a resolution plan for the company by JSW Steel Ltd. had been approved, stalling the implementation of the resolution plan.
The National Company Law Appellate Tribunal has since held JSW Steel immune from prosecution under the new law and allowed implementation of the plan. The new Bill also seeks to create a threshold of a minimum of 10 per cent of allottees or 100 individual allottees to initiate insolvency proceedings for real estate projects. Government officials said that the move was aimed at preventing speculative homebuyers from dragging otherwise viable real estate projects through the IBC. The amendment, officials said, also seeks to protect the ‘going concern’ status of companies undergoing insolvency proceedings by allowing a company’s resolution professional to require that suppliers continue providing essential goods and services.
The Standing Committee on Finance had, however, opposed this move in its report equating it to over-regulation of suppliers, particularly MSME suppliers, and argued that the limited capacity of suppliers should be channelled to the best interests of the economy and not just for the health of corporate debtors. Experts said the move to protect successful bidders from prosecution for offences by erstwhile management was an important step for the success of the insolvency regime.
“… the most significant change is the incorporation of Section 32A in the Bankruptcy Code in the current times. The finalised resolution plans were being affected pursuant to the attachments by the Enforcement Directorate,” said Shardul Shroff, managing chairman of law firm Shardul Amarchand Mangaldas & Co.
He added that the decision to protect essential supplies of corporate debtors would benefit “telecom companies, mining companies and all companies which operate under license to continue their businesses (during insolvency)”.
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