17 July 2019: The government on Wednesday cleared amendments to the Insolvency and Bankruptcy Code (IBC) to enforce strict timelines for the rescue of companies and maximize the value of the insolvent company as a going concern.
The Cabinet approved seven amendments to the Code, which will now be taken to Parliament. An official statement said the amendments aim to fill the critical gaps in the corporate rescue framework specified in the Code.
The amendments set 330 days as the maximum time allowed for bankruptcy resolution, including for litigation and other judicial process. At present, the Code allows a maximum of 270 days for clearing a resolution plan, but courts have taken the lenient approach of excluding the time spent on legal challenges by various parties from the time frame. Promoters aggressively defending their cases and resisting their loss of control of their companies have, however, resulted in delays in many cases.
The amendments also seek to make explicit the rights of financial creditors who have not voted in favour of a rescue plan, as well as that of operational creditors. The proposal is to specify that they will get paid as per the hierarchy specified in the Code. The Code gives the highest priority to those who have brought interim finance to meet the costs of resolution or liquidation, followed by dues of workers for the past two years and dues of secured creditors in equal priority. Employees other than workmen and unsecured creditors and operational creditors are further down the line in the priority of receiving resolution or liquidation proceeds.
Another key amendment is to specify that the bankruptcy resolution or liquidation arrived at under the Code is binding on central, state and local governments, to whom the bankrupt firm may owe dues.