Insolvency and Bankruptcy Code Current Affairs - 2019
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The Union Finance Minister Arun Jaitley has written a Facebook post titled ‘Two years of insolvency and Bankruptcy Code (IBC)”. In the post, he explains how things have been changed after the IBC was passed by the Parliament.
Once the IBC was passed by the government, the government took immediate steps to set up Insolvency and Bankruptcy Board of India and National Company Law Tribunal (NCLT).
Recovery of Debt
The Finance Minister states that the recovery under the IBC was satisfactory and highlights the ways under IBC through which the money was recovered:
- The section 29 A of IBC mandated that persons who have contributed to the defaults of the corporate debtor or are undesirable due to incapacities as specified in the section or are a ’related party’ to another defaulting party, are prevented from gaining control of the corporate debtor by being declared ineligible to submit a resolution plan under the Code.
- As a result, the companies are paying up in anticipation of not crossing the red line and being referred to NCLT.
- Many debtors are paying up once the creditor has filed the petition at a pre-admission stage so that the declaration of insolvency does not take place.
- NCLT has resolved some major cases & many are on the way of resolution.
There has been a definite improvement in the lending and borrowing behaviour, an increase in the conversion of NPAs into standard accounts and decline in new accounts are a testimony to this fact.
The Finance Minister notes that so far 1322 cases have been admitted by NCLT. 4452 cases have been disposed at the pre-admission stage and 66 have been resolved after adjudication. 260 cases have been ordered for liquidation. In 66 resolution cases, the realization by creditors was around Rs. 80,000 crores.
Parliament has passed Insolvency and Bankruptcy Code (Amendment) Bill, 2018 to bring relief to home buyers and Micro, Small and Medium Enterprises (MSMEs). The Bill replaces ordinance promulgated in this regard and amends Insolvency and Bankruptcy Code, 2016.
Key Features of Bill
The Bill recognises home buyers as financial creditors in the real estate project and giving them due representation in the Committee of Creditors (CoC), thus providing significant relief to home buyers. It will allow home buyers to invoke Section 7 of IBC, 2016 against errant developers.
This will allow financial creditors to file application seeking insolvency resolution process. As financial creditors, home buyers will be able to participate in decision-making process when developers are declared bankrupt under IBC, 2016. The bill also proposes to reduce minimum voting threshold for Committee of Creditors (CoC) to 66%, from 75% for key decisions.
Besides, the Bill also benefits Micro, Small and Medium Enterprises (MSME) sector from IBC. It allows promoter of MSME to bid for their own enterprise undergoing the insolvency resolution process as long as they are not wilful defaulters.
The IBC, 2016 provides time-bound process to resolution of insolvency among companies and individuals. Insolvency is situation where individual or company is unable to repay their outstanding debt. Government in November 2017 had set up Insolvency Law Committee to review IBC and identify issues in its implementation and suggest changes. The Committee had made several recommendations such as exempting MSMEs from certain provisions of IBC, treating allottees under real estate project as financial creditors, reducing voting thresholds of committee of creditors (CoC), among others. Subsequently, President had promulgated Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018 in June 2018 after approval of Central Government.