President Kovind gives nod to ordinance to amend Insolvency

Andrew Cummings
November 23, 2017

He said the ordinance does not ban them from bidding for the stressed assets but would make it hard for them and disentitles them from doing it.

The Union Cabinet that met in the national capital on Wednesday approved an ordinance to amend the Insolvency and Bankruptcy Code. The government has been anxious about the political consequences of such an eventuality - promoters regaining control - as banks are forced to swallow loan losses.

The Insolvency and Bankruptcy Code, 2016 was introduced past year to provide market-determined and time-bound insolvency resolution process.

Sources in the corporate affairs ministry said the amendments are aimed at resolving issues pertaining to promoters manipulating certain provisions to take back the company, using the clauses of insolvency. The government opted for the ordinance route weeks before the winter session of Parliament as some defaulting cases are likely to come up for resolution soon.

According to a report in the Times of India, the ordinance will indeed have the provision to bar bidding by wilful defaulters. "The whole process (of resolution) is at an advanced stage and therefore you want the process to go on the right track", Jaitley said.

Also ineligible are those who are promoters or in management of control of the resolution applicant, or will be promoters or in management of control of corporate debtor during the implementation of the resolution plan, the holding company, subsidiary company, associate company or related party of the above referred persons, the statement said. The Insolvency and Bankruptcy Board of India (IBBI) has also been given additional powers. Wilful defaulters are those who have deliberately avoided repayment of loans despite having the capacity to do so, have diverted funds for other purposes or siphoned off money.

The Cabinet is understood to have approved changes in the law for prescribing eligibility criteria with respect to prospective "Resolution Applicants", who will be allowed to bid for those companies.

In June, the Reserve Bank of India first identified 12 large accounts, accounting for a quarter of the banking system's gross NPAs.

In addition to putting in place restrictions for such persons to participate in the resolution or liquidation process, the amendment also provides such check by specifying that the Committee of Creditors (CoC) should ensure the viability and feasibility of the resolution plan before approving it.

The Cabinet took the view that it is necessary to ensure that promotors of the corporate debtors who are found to have contributed to the default need to be prevented from regaining control of the company through backdoor entry in the garb of a resolution applicant.

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