The Rajya Sabha on August 10, 2018 passed the Insolvency and Bankruptcy Code (Second Amendment) Bill, 2018. The bill was passed by the Lok Sabha on July 31, 2018.
The Bill seeks to replace the Insolvency and Bankruptcy Code (Amendment) Ordinance 2018. It will now go to the President for his assent.
Provisions of the Insolvency and Bankruptcy Code (Second Amendment) Bill, 2018
• The Bill amends the Insolvency and Bankruptcy Code, 2016 to clarify that allottees under a real estate project should be treated as financial creditors.
• The voting threshold for routine decisions taken by the committee of creditors has been reduced from 75 percent to 51 percent. For certain key decisions, this threshold has been reduced to 66 percent.
• The Bill allows the withdrawal of a resolution application submitted to the National Company Law Tribunal (NCLT) under the Code. This decision can be taken with the approval of 90 percent of the committee of creditors.
Boon for Homebuyers
Earlier in June 2018, Presdint Ram Nath Kovind approved the ordinance to amend the Insolvency and Bankruptcy Code, 2016 (IBC), heaving a sigh of relief to homebuyers who have invested in housing projects of real estate companies that have gone bankrupt.
Homebuyers will be treated on par with financial creditors in terms of their legal rights. They will have the right to initiate a resolution process against the bankrupt real estate companies and get their money back.
Insolvency and Bankruptcy Code (Amendment) Ordinance 2018
• The committee of creditors’s voting rights of resolution plans will be limited to 66 percent from earlier threshold of 75 percent, a move that will help speed up the resolution process.
• In order to facilitate the corporate debtor to continue as a going concern during the CIRP, the voting threshold for routine decisions has been reduced to 51 percent.
• Withdrawal of an insolvency application will be allowed, if 90 percent of the creditors agree.
• The Ordinance also provides for a mechanism to allow participation of security holders, deposit holders and all other classes of financial creditors that exceed a certain number, in the meetings of the Committee of Creditors.
• Section 29(A) of the IBC, 2016 has been amended to exempt pure play financial entities from being disqualified on account of non-performing assets (NPA).
• Taking into account the wide range of disqualifications contained in Section 29(A) of the Code, the Ordinance provides that the Resolution Applicant shall submit an affidavit certifying its eligibility to bid.
• Promoters of companies with turnover of up to Rs 250 crore will be allowed to bid. Earlier, they were barred from bidding as the government feared that they will walk away with the stressed assets at a discount.
• The ordinance proposes to facilitate implementation of the resolution plan by the successful bidder.
• It provides a year time to the Resolution Applicant to obtain necessary statutory clearances from central, state and other authorities.
• The other changes brought about by the Ordinance include - non-applicability of moratorium period to enforcement of guarantee; and liberalising terms and conditions of interim finance to facilitate financing of corporate debtor.