On Thursday, both houses of Parliament passed the Insolvency and Bankruptcy Code (Amendment) Bill, 2020 (“Bill”) thereby repealing the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2019 (“Ordinance”). All the amendments made prior in the Ordinance have been captured verbatim by the Bill. The Bill will now require the President’s assent to become a law in the form of the Insolvency and Bankruptcy Code (Amendment) Act, 2020 (“Act”).
Some of the salient features of the Bill are enumerated herein below:
- Prescribing threshold for certain categories of financial creditors: In line with the Ordinance, the Bill amends the Section 7 of the Code by inserting explanations clarifying that the financial creditors who are allottees under a real estate project; and financial creditors falling in the category of creditors referred to in clause (a) and (b) of sub-section 6(a) of section 21, may initiate corporate insolvency resolution process (“CIRP”) against the corporate debtor before the adjudicating authority by filing a joint application comprising of not less than 100 of such allottees under the same real estate project/creditor in the same class; or not less than 10% of the total number of such allottees under the same real estate project/ creditors in the same class, whichever is less. The Bill further states that if any application already filed by the aforesaid categories has not been admitted by the adjudicating authority before the commencement of the Bill, then such an application will be required to be modified to comply with the Act within 30 days of its commencement, failing which the application shall be deemed to be withdrawn before its admission.
- Clarification on persons not entitled to make application: The Bill clarifies that corporate debtor as referred to in clauses (a) to (d) of Section 11 of the Code will now be permitted to initiate CIRP against other corporate debtor’s, which was not allowed previously.
- No suspension or termination of a license, permit, registration, etc. given by the government under the moratorium period: The Bill confirms the provisions of Section 14 amended by the Ordinance stating that a license, permit, registration, quota, concession, clearances or a similar grant or right given by the central government, state government, local authority, sectoral regulator or any other law for the time being in force shall not be suspended or terminated on the grounds of insolvency. However, it is to be ensured that there should not be any default in payment of the current dues arising in relation to the use or continuation of such license, permits, etc. during the moratorium period.
- Continuance of supply of goods and services critical for the Corporate Debtor:The Bill provides for the non-termination, non-suspension and non-interruption of the supply of the goods and services critical to protect and preserve the value of the Corporate Debtor and for the purposes to manage its operations as a going concern, which may be deemed fit as per the interim resolution professional or resolution professional, as the case may be during the moratorium period. However, it is clarified that this provision will not apply if the corporate debtor has failed to pay the suppliers during the moratorium period or other specified circumstances.
- Time limit for the appointment of the interim resolution professional: The Bill amends section 16 of the Code, wherein the time limit for appointment of the interim resolution professional has now been changed from “within a period of 14 days from the insolvency commencement date” to “the date on which the insolvency is commenced”.
- Liability for offences committed prior to the commencement of the CIRP: The Bill approves the insertion of a new section 32A, wherein it provides that the corporate debtor will not be liable for an offence committed prior to the commencement of the CIRP from the date the resolution plan is approved by the adjudicating authority. However, it must be noted that the approved resolution plan must result in change in the management or control of the corporate debtor as prescribed in section 32A. The Bill further discharges the corporate debtor from any prosecution that has been instituted against it during the CIRP on the approval of the resolution plan, however, the officer who is default in case of a company and a designated partner in case of an LLP shall continue to be liable for any such offence committed by the corporate debtor. In respect to such scenario, the Bill also safeguards the property of the corporate debtor from actions such as attachment, seizure, retention or confiscation of such property.
For detailed information, please contact us.