The government proposed changes to insolvency law

On Wednesday, the government proposed a raft of changes, to strengthen the insolvency law regime, including fast-tracking the process, widening the pre-packaged framework scope, and developing an electronic platform with minimal human interface.

The code came into force in 2016 to provide market-linked and time-bound resolution of stressed assets. The Insolvency and Bankruptcy Code (IBC) has already undergone various amendments.

The ministry said in a notice “To strengthen the functioning of the IBC, changes to the code are being considered in relation to the admission of corporate insolvency resolution process (CIRP) applications, streamlining the insolvency resolution process, recasting the liquidation process, and the role of service providers under the Code”.

The corporate affairs ministry has suggested developing a state-of-the-art electronic platform along with other changes to handle several processes under the Code with lesser human interface. 

The notice said, “It is being considered that this e-platform may provide for a case management system, automated processes to file applications with the Adjudicating Authoritys, delivery of notices, enabling interaction of IPs (Insolvency Professionals) with stakeholders, storage of records of CDs (Corporate Debtors) undergoing the process, and incentivizing participation of other market players in the IBC ecosystem”. 

Redesigning of the Fast-Track Corporate Insolvency Resolution Process (FIRP) has been proposed by the ministry to allow financial creditors to drive the insolvency resolution process for a Corporate Debtor outside of the judicial process while retaining some involvement of the Adjudicating Authority (Adjudicating Authority) to improve the legal certainty of the final outcome.

It is being considered that the provisions dealing with FIRP may be amended to provide that unrelated FCs of a Corporate Debtor may select and approve a resolution plan through an informal out-of-court process and involve the Adjudicating Authority only for its final approval.

The notice said, “through this procedure, insolvency resolution will be available for Corporate Debtors with such asset size as notified by the central government. Further, the resolution plan approved through this procedure will have the same sanctity as a regular plan approved during the CIRP (Corporate Insolvency Resolution Process)”. 

Certain changes have also been proposed with respect to the resolution process for real estate projects. “When an application is filed to initiate the CIRP in respect of a Corporate Debtor who is the promoter of a real estate project, and the default pertains to one or more of its real estate projects; the Adjudicating Authority, at its discretion, shall admit the case but apply the CIRP provisions only with respect to such real estate projects, which have defaulted. Such projects shall be recognized as distinct from the larger entity for the limited purpose of the resolution. 

Another proposal is to enable a resolution professional to transfer the ownership and possession of a plot, apartment, or building to the allottees with the consent of the CoC (Committee of Creditors). 

“It is observed that allottees may request ownership and possession of a complete unit of the real estate during a CIRP or a project-specific resolution process as being considered herein, which is not authorized during the moratorium under the code”, the notice said. 

In addition, the ministry said that it is considered that the right of a Corporate Debtor to propose an IRP should be done away with, and in such instances, the IRP concerned should be appointed by the Adjudicating Authority on the recommendation of the IBBI.

Proposed amendments to the Code are a step in the right direction, said Mani Gupta, Partner at Sarthak Advocates & Solicitors. 

He added, “Keeping the Fast-Track CIRP outside the judicial process may help in quicker disposal of the CIRP, however, care will have to be taken to ensure that interests of stakeholders other than the financial creditors are duly protected within the framework provided in the IBC. A limited role for adjudicating authority in approving the final plan is perhaps intended for that”. 

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