Cabinet clears ordinance to change insolvency and bankruptcy law
The Cabinet approved changes to the Insolvency and Bankruptcy Code (IBC), and sent it to the President for his approval. Once approved, the ordinance will be placed before Parliament in the winter session. One of the changes proposed is to ensure that promoters deemed wilful defaulters do not eventually end up taking control of the company again.
Speaking to reporters, Finance Minister Arun Jaitley said, “Some changes have been proposed in the Insolvency and Bankruptcy Code. Since this is being done by way of an ordinance, till it is approved, as a matter of propriety, we shall not give details,” Jaitley told reporters.
The code, as it stood prior to the amendments approved on Wednesday, does not prevent promoters of a failed company from proposing a turnaround plan. There have been concerns that promoters could reacquire their companies at a discount once the creditors decide to sacrifice a part of the money they are owed as part of a debt resolution plan. The amendment was likely to streamline the process of selecting buyers of stressed assets, and would prevent wilful defaulters and promoters with past records of fraud from buying stressed companies cheap.
The amendment comes at a time when several firms are looking to acquire stressed assets. There has also been speculation that in some cases, promoters of firms undergoing insolvency are trying to re-acquire them. In June, RBI referred 12 large defaulters to creditors for the start of bankruptcy proceedings at the NCLT. The 12 entities made up a quarter of gross bad loans, which reached Rs. 7.79 trillion at the end of June.