Insolvency and Bankruptcy Code Current Affairs
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.
The Ministry of Corporate Affairs has released draft on cross-border insolvency in order to strengthen Insolvency and Bankruptcy Code (IBC). It will help banks access overseas assets of company undergoing resolution. Similarly, Indian authorities will also be required to cooperate with foreign creditors to domestic company.
The existing IBC provides for two Sections –234 and 235 relating to cross border insolvency but these are not adequate to effectively deal with default cases of domestic corporate debtor having assets and operations outside India. In many of ongoing cases under IBC, several companies have assets and operations outside India, for which legal framework is required to deal assets overseas.
Existing provisions only allow Central government to enter into agreement with foreign country for enforcing provisions of Code. Second, the government can issue a letter of request to country outside India seeking information. The draft norms have now been issued to plug these loopholes and have any effective resolution mechanism in place for cross-border insolvency.
The draft on cross-border insolvency favours adoption of UNCITRAL (United Nations Commission on International Trade Laws) Model Law on Cross-Border Insolvency, 1997. Under it, central government after entering into agreement with other countries may bring overseas asset of domestic corporate debtor into consideration of insolvency resolution in India. Initially, cross border insolvency framework will apply only to corporate debtors, but later it will be extended to cases of personal insolvency resolution as well.
UNCITRAL Model Law on Cross-Border Insolvency, 1997
On global scale, this model law envisages balance between liquidation and reorganisation of global companies going in for resolution. It has emerged as most widely accepted legal framework to deal with cross-border insolvency issues while ensuring least intrusion into country’s domestic insolvency law. Due to growing prevalence of multinational insolvencies, the model law has been adopted by 44 States till date, including Singapore, UK, and US.