Insolvency and Bankruptcy Code amended

With an aim to further strengthen the insolvency resolution process, the Insolvency and Bankruptcy Code (“Code”) has been amended by way of the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2017, dated November 23, 2017 (“Ordinance”), to inter alia, include prohibition on certain persons from submitting resolution plans, who on account of their antecedents, may adversely impact the credibility of the insolvency resolution process.

The salient features of the Ordinance are as follows:

  • A new Section 29A has been inserted which makes the following persons ineligible to submit a resolution plan for any company, if such person, or another person jointly with such person, or any person who is a promoter or in the management or control of such person:
    • is an un-discharged insolvent;
    • is a wilful defaulter in accordance with the RBI guidelines;
    • whose account is classified as a non-performing asset (“NPA”) for one year or more and has failed to make payment of overdue amounts including interest thereon and charges relating to the NPA before submission of the resolution plan;
    • has been convicted of an offence punishable with imprisonment for two (2) years or more;
    • has been disqualified to act as director under the Companies Act, 2013;
    • has been prohibited by SEBI from trading in securities or accessing the securities market;
    • has indulged in preferential transaction or undervalued transaction or fraudulent transaction in respect of which an order has been made by the adjudicating authority under the Code;
    • has executed an enforceable guarantee in favour of a creditor, in respect of a corporate debtor undergoing a corporate insolvency resolution process or liquidation process under the Code;
    • any connected person who meets any of the criteria mentioned above. Connected person means a promoter or one in management or control of the resolution applicant, or a person who shall be the promoter or in management or control of corporate debtor during the implementation of the resolution plan, or the holding company, subsidiary company, associate company or related party of the above referred persons.
  • Any resolution plan submitted before the Ordinance came into effect shall come under the purview of Section 29A and if a resolution applicant is ineligible under Section 29A to submit such resolution plan, that resolution plan shall be rejected, and where no other resolution plan is available, the resolution professional shall be required to invite a fresh resolution plan.
  • The scope of the Code has been expanded to now include personal guarantors to corporate debtors, partnership firms and proprietorship firms, and individuals other than personal guarantors.
  • The Ordinance amends Section 25(2)(h) to invite prospective resolution applicants to submit resolution plans provided they fulfill the criteria laid down by the resolution professional with the approval of the Committee of Creditors (“CoC”). Further, Section 30(4) of the Code has been amended to explicitly obligate the CoC to consider feasibility and viability of the resolution plan in addition to such conditions as may be specified by the Board before approving any resolution plan.
  • The Ordinance amends the definition of ‘Resolution Applicant’ to mean a person who individually, or jointly with any other person, submits a resolution plan to the resolution professional pursuant to an invitation made by the resolution professional under Section 25(2)(h) of the Code.
  • The liquidator is now restrained from selling property of the corporate debtor to any person who is ineligible to be a ‘resolution applicant’ pursuant to Section 29A of the Code.