4 days ago
IBC amendments to allow partial asset sales, second shot at revival
New Delhi: Apart from speeding up the disposal of distressed companies as going concerns, the proposed amendments to the Insolvency and Bankruptcy Code (IBC) tabled in Lok Sabha on Tuesday also makes it easier for splitting up such firms so that lenders could consider sale of individual assets when they are unable to find takers for the whole business, two persons informed about the government's deliberations on insolvency reforms said.
The proposed amendments will also prevent orders for liquidation of a distressed company just because the 330-day window available for debt resolution under IBC has expired. This is meant to avoid situations like the Bhushan Power & Steel Ltd., the resolution plan for which was annulled by the Supreme Court in its now-recalled 2 May order.
The apex court had then said that approving the corporate turnaround plan after the 330-day window was 'a grave error of law', setting aside JSW Steel's ₹ 19,700 crore resolution plan for Bhushan Power and ordering its liquidation.
The proposed amendments specifically allow insolvency tribunals to grant a 120-day fresh opportunity to consider a new resolution plan before finally sending the company to liquidation, explained one of the two persons cited earlier, both of whom spoke on the condition of anonymity.
'The second attempt will benefit from the wealth of experience from the first effort,' said this person.
Queries emailed on Thursday to the ministry of corporate affairs and the Insolvency and Bankruptcy Board of India (IBBI) seeking comments for the story remained unanswered till press time.
To be sure, stakeholders can request tribunals to grant extra time even under the current system, but formally writing into the Code that there is a second official chance available for reviving a distressed company will boslter the view that IBC's main goal is to rescue a struggling business, instead of just shutting it down, experts said.
A second chance at insolvency resolution within a maximum period of 120 days even when grounds of liquidation are met after the 330-day period is sought to be allowed by inserting a new sub-section 1A in Section 33 of IBC, which deals with liquidation proceedings. For such second chance, 66% of creditors have to consent.
'In certain circumstances, the amendment empowers the adjudicating authority to allow the recommencement of the corporate insolvency resolution (CIR) proceedings despite prior expiry of the CIR process period,' explained Anoop Rawat, national practice head (insolvency and restructuring) at law firm Shardul Amarchand Mangaldas & Co.
Experts are also of the view that the flexibility to dispose of individual assets will be useful in the resolution of businesses with operations in multiple sectors.
'Explicitly incorporating in the Code that a resolution plan can include sale of one or more assets of the corporate debtor recognises the need for this flexibility and to avoid legal challenges. In May this year, IBBI had introduced this provision through regulations. But specifying this in the Code itself gives greater comfort to stakeholders in opting for this,' said Rawat.
