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Mint
2 days ago
- Business
- Mint
IBC amendments seek to boost assets available for distressed company revival
Creditors to bankrupt firms could get their hands on a wider pool of valuable assets and claw back money from more shady promoter transactions, once latest changes to India's insolvency rules take effect. While the Insolvency and Bankruptcy Code (IBC) remains the primary mode for bankruptcy resolution, lenders often seize assets of defaulting companies under various other laws; however, such assets stay with the individual banks themselves. The amended law will aid in bringing such assets—also seized from the defaulter's personal or corporate guarantors, essentially, its promoters, corporate parent, or an associate company—within the pool of assets for resolution. Experts said this increases flexibility in rescuing businesses and fetches better value for the business, rather than selling assets by individual lenders in a fragmented way. However, the process is not automatic, and must be blessed by the committee of creditors supervising the resolution. On Tuesday, the Lok Sabha referred the Insolvency and Bankruptcy Code (Amendment) Bill 2025 to a select committee of the Parliament. Before the debut of IBC in 2016, lenders used the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act (Sarfaesi Act) of 2002 to seize assets from defaulters. In some cases, lenders still resort to Sarfaesi Act that allows secured creditors to seize assets of borrowers who fail to repay dues within 60 days of demanding repayment. Separately, the new bill extends the timeline to tag dubious pre-bankruptcy transactions of sick companies as avoidance transactions that can be reversed by tribunals. While the stipulated time for admitting a case to bankruptcy court is 14 days, the average time is 434 days. The lengthy window enables unethical promoters to siphon off money via wrongful transactions once the bankruptcy petition is filed. Avoidance transactions may be undervalued, preferential, fraudulent or extortionate. Currently, transactions done up to two years prior to admission can be cancelled in the case of related party transactions, and up to one year in the case of other transactions. The bill seeks to expand this 'look back' period to two-year preceding initiation of bankruptcy proceedings all the way up to the date of its admission in NCLT in the cases of related party transactions. In the case of an unrelated parties, this period starts from one year prior to bankruptcy petition filing to its admission date. 'We have seen in many insolvency cases that considerable time—on an average one to two years—is taken in admission of the insolvency after the initiation of the insolvency process by the creditors and most of the defaulting entities would have engaged in avoidance transactions either during this period or even much earlier than this," said Surendra Raj, partner, Grant Thornton Bharat. 'Amending the look-back period for reporting such transactions undertaken during the two years (for related parties) and one year (for unrelated parties) from the initiation date (that is, the date when first application is filed for initiation of insolvency) would bring in many more such avoidance transactions in the purview of being classified as avoidance transaction. While this is certainly a welcome step to bring back public money to victims, one needs to be very careful that genuine business transactions don't get reported in this category resulting in over work for already burdened NCLTs," said Raj. 'Hence, very careful analysis would be required to be done by the resolution professional or the liquidator and professional advisors before reporting these transactions," said Raj. Soumitra Majumdar, partner, JSA Advocates & Solicitors said the proposed amendments provide the much-needed clarity on treatment of avoidance transactions and the resultant assets. 'The statutory aim appears to be to build in certainty of recovery, and flexibility in disposal methods of assets—both at the corporate debtor level and at those of the guarantors, subject to certain conditions. Ability to efficiently monetise assets will enhance creditor and stakeholder recoveries," said Majumdar. 'On the demand side, buyers will naturally be encouraged to offer price commensurate with the economic value of assets, without having to account for legal and regulatory risks associated with such acquisitions," said Majumdar. The government should also introduce dedicated NCLT benches to adjudicate on these transactions because many applications to annul these transactions, having approximately exposure of ₹3.89 trillion already in the last eight years are pending for adjudication at different stages, said Raj of Grant Thornton Bharat. The bill also clarifies that recovery proceedings from avoidance transactions or fraudulent trading will not affect the debt resolution process and these will continue independently even after completion of debt resolution or even liquidation of the company.
New Indian Express
3 days ago
- Business
- New Indian Express
Out-of-court, debtor-in-control process to hasten resolution of insolvency cases
NEW DELHI: A lender-initiated, debtor-in-control resolution process, as proposed under the Insolvency Bill, is a big step towards faster resolution of insolvency cases in India, feel experts. The Insolvency & Bankruptcy Code (Amendment) Bill, 2025, which was tabled in parliament on Tuesday, has proposed the 'creditor-initiated insolvency resolution process', under which a resolution process can be initiated on approval of 51% of the financial creditors. However, the management of the company continues to be vested with the existing board of directors of the company under the supervision of the resolution professional appointed by financial creditors. The delay in getting approval of the adjudicating authority (NCLT) is the biggest reason for delay of the whole resolution process. In order to address this issue, the Bill proposes that a creditor-initiated resolution process can be initiated without the need for NCLT approval. 'The process contains provisions for approaching the adjudicating authority at different stages but not for the initiation of the process unless objected by the corporate debtor,' says Surendra Raj, partner, Grant Thornton.
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Business Standard
3 days ago
- Business
- Business Standard
IBC Bill proposed wider look-back period for preferential transactions
In order to capture a broad range of transactions, particularly those undertaken to exclude assets from the insolvency process, the Insolvency and Bankruptcy Code (IBC) Amendment Bill has amended the look-back period, which will be counted from the initiation of insolvency instead of its commencement. The Centre on Tuesday introduced the IBC Bill in the Lok Sabha, proposing a wide range of reforms from group and cross-border insolvency to creditor-initiated insolvency resolution process. The Bill has been referred by the government to a select committee. In cases where the admission of an application takes longer than 14 days, as required under the Code, the look-back period for preferential transactions may not be able to capture a significant portion of transactions that occurred before the filing of an application. The government was concerned that this could give corporate debtors a perverse incentive to delay admission of the application for commencement of the insolvency resolution process to reduce the scope of an avoidable transaction. 'The threshold for the look-back period for preferential transactions, therefore, has been adjusted to more effectively capture a broader range of pre-filing transactions, particularly those undertaken in anticipation of the commencement of the insolvency resolution process to exclude assets from the process,' the Bill stated. 'The resolution professional and liquidators should do a careful analysis so that genuine business transactions do not get counted as preferential transactions. And, everything is not pushed as avoidance or fraudulent. There are a huge number of such cases already pending in the National Company Law Tribunals (NCLTs),' said Surendra Raj, Partner, Grant Thornton Partner. Aligning with the recent regulations introduced by the Insolvency and Bankruptcy Board of India (IBBI) — allowing part resolution of assets — the Bill has also inserted a similar provision to Section 5 of the Act. It is to allow 'merger, amalgamation, demerger and sale of one or more assets of the corporate debtor.' An important clarification brought in the Bill relates to the assurance that government concessions such as licence, permit, registration and quota, by the Centre, state, local authority or sectoral regulator would continue as part of a resolution process. 'Several similar assets are languishing before the courts, suffering value erosion and being prejudicial to all stakeholders. Apart from enhancing the efficacy of IBC, this should also make these projects bankable by project financiers. This is indeed a significant step, and in absolute consonance with the stated objectives of the IBC,' Soumitra Majumdar, partner, JSA Advocates & Solicitors, said. The amendments have provided for a continued supervisory role of the committee of creditors (CoC) even during liquidation. In order to address delays on account of inter-creditor disputes, the Bill has said that the adjudicating authority may, before rejecting the resolution plan, give notice of an additional 30 days to the CoC to rectify any defects in the resolution plan. The proposed amendments enable the adjudicating authority to first approve implementation of the resolution plan. Then, by a separate order, it can approve the manner of distribution, thereby segregating the two issues.
