On January 18, 2023, the Ministry of Corporate Affairs (“MCA”) issued a notice inviting comments on the changes that are being considered to the Insolvency and Bankruptcy Code, 2016 (“IBC”). IBC which lays down the insolvency framework for the insolvency of corporate persons, partnership firms, and individuals, has several shortcomings. In addressing the same, the MCA issued a notification back in 2021 calling for comments on matters of corporate insolvency resolution and liquidation frameworks and the introduction of a cross-border insolvency framework. Given the public response received under the said notification, the MCA has suggested numerous changes to ensure that effective resolution plans are drafted with minimal setbacks, to bring about transparency in the corporate insolvency resolution process, and to avoid unnecessary delays.
Some of the changes proposed are as follows:
- Introducing an electronic platform so that processes under the Code can be carried out online and for the smooth interaction of institutions such as MCA, Adjudicating Authority (“AA”), and Insolvency and Bankruptcy Board of India (“IBBI”), etc. which currently make use of separate electronic platforms.
- Making it mandatory to admit an application for initiation of CIRP if the corporate debtor’s default is established (currently, the AA has the discretion to accept or reject an application even when a case of default is made out).
- Limiting the corporate debtor’s right to propose an insolvency professional to be appointed as an Interim Resolution Professional (“IRP”) by authorizing the AA to make the appointment based on the recommendations of the IBBI.
- Granting additional powers to the AA to impose penalties for non-compliance with provisions of the Code.
- Empowering the Resolution Professional to transfer ownership and possession in immovable property, specifically units of real estate projects (with due consent of the Committee of Creditors) in favor of the allottees.
- Setting up a monitoring committee to supervise the implementation of a resolution plan once the same is approved by the AA.
- Clubbing of the guarantor’s assets with those of the corporate debtor when they are connected in such a way that an effective resolution is not possible without such clubbing.
- Equal treatment of all unsecured creditors other than the workmen and employees under the waterfall arrangement.
- Declaration of valuation estimate of the corporate debtor’s assets in the Information Memorandum.
- Selection and approval of resolution plans by unrelated financial creditors of a corporate debtor with the help of an informal out-of-court process.
- Using a well-organized challenge mechanism while the committee of creditors considers competing resolution plans to avoid challenges to the plan upon approval.
The suggestions and comments must be submitted by February 07, 2023, and the online form for the same can be accessed here.