More changes to bankruptcy code likely in Budget

More changes to bankruptcy code likely in Budget

The government will fix a few urgent problem areas in the insolvency ordinance when it is brought to Parliament in the ongoing session but is likely to make substantive changes to the law in the upcoming budget after the panel looking into the Insolvency and Bankruptcy Code (IBC) makes its recommendations.

The government had last month issued an ordinance to list eligibility condition for those participating in the resolution process of insolvent companies, barring promoters of such companies from bidding for the company or its assets.




The government has also set up a committee to identify areas that need to be addressed after seeing the working of the insolvency code for about a year. “Some of these changes could be brought in as part of the finance bill,” a top government official told ET.

As ET had reported earlier, there are two changes that the government may introduce to the law in the ongoing winter session. The first relates to allowing promoters of small and medium enterprises to bid for their companies under the resolution process. And the second could be allowing corporate guarantors of insolvent companies to participate in the resolution process if they have honoured the guarantee or if it has not been invoked

The key issue that may be addressed through the finance bill is that of the taxation of transfer of assets under resolution process. There is a demand that such transfer of stressed assets should not be taxed.

Give Investors MAT Relief: IBA

The Indian Banks Association has sought removal of Minimum Alternate Tax (MAT) for new investors apprehending depressed bids. Industry wants that if any outstanding liability, inclusive of any accrued interest, is waived in accordance with the approved resolution plan, the waived amount should not be subject to MAT.




The budget may also consider exempting companies bidding in the same sector from competition law provisions. The government is also keen that buyers of stressed assets be treated on par with the secured borrowers.The law also needs to clearly define related parties to the insolvent entity or promoters. This is because the law as it currently stands effectively bans every related entity from participating in the resolution process.

The committee reviewing the IBC is headed by corporate affairs secretary and Insolvency & Bankruptcy Board chairman MS Sahoo.The committee is also looking at larger issues emanating out of the implementation of the IBC such as those related to property buyers after some real estate developers landed at the National Companies Law Tribunal. There is a demand that buyers should be given a high priority in the resolution process.




The Insolvency and Bankruptcy Code was passed in May 2016 and its implementation started in December 2016.ET had earlier reported that the government could allow promoters of stressed MSMEs to bid for their own companies.”There are very few interested bidders for such (MSMEs) companies and hence many of them are heading towards liquidation, with very low realisation for lenders,” said Manoj Kumar, Partner & Head – M&A and Insolvency Resolution Services, calling for immediate measure to address this.

“The suppliers (operational creditors) of such companies would not get anything under liquidation as liquidation values would not be sufficient even for secured lenders.”Another immediate issue that could be considered when the ordinance is brought to Parliament is to allow corporate guarantors of insolvent companies to participate in the resolution process if they have honoured the guarantee or the same has not been invoked.The ordinance places a blanket ban on corporate guarantors of insolvent entity from participating in the resolution process.

The Economic Times, New Delhi, 21th December 2017

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