9 changes proposed to the Insolvency and Bankruptcy Code (IBC)

by the Injeti Srinivas Committee

Insolvency and Bankruptcy Code, 2016

IBC passed in November 2016

Objectives:

to consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner; and

to establish the Insolvency and Bankruptcy Board of India (IBBI)

Injeti Srinivas Committee

14 member Insolvency Law Committee appointed by Government of India in November 2017

Committee Chaired by Ministry of Corporate Affairs Secretary, Mr. Injeti Srinivas

Committee tasked with making recommendations on issues arising from the implementation of IBC

Report released in March 2018-Recommends various amendments to IBC

Protection to Micro, Small & Medium Enterprises

Current Status:

IBC does not provide for any exemptions from any provisions to any class of companies

Srinivas Committee Report:

Recommends exemptions to be granted by Government to certain classes of companies, including MSMEs, from application of certain provisions of IBC

Does not specify which provisions of the IBC ought to be inapplicable to MSMEs and other exempted classes of companies

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Home Buyers to be Financial Creditors

Current Status:

A "financial creditor" means any person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred to

Definition of "financial creditor" does not include home buyers

Srinivas Committee Report:

Recommends that home buyers be treated as financial creditors owing to the unique nature of financing in real estate projects

2

Treatment of Personal Assets of Guarantors

Current Status:

Section 14 of IBC provides for stay on litigation involving the corporate debtor and transactions concerning alienation of its assets ("Moratorium")

In a recent case, State Bank of India vs. V Ramakrishnan and Veesons Energy Limited, NCLAT held that Moratorium on the corporate debtor would also include moratorium on all proceedings with respect to assets of guarantor of corporate debtor. Our summary of the judgment is available here.

Srinivas Committee Report:

Disagrees with the above judgment

Recommends that all assets of guarantors of corporate debtor be outside the scope of Moratorium i.e. that there be no bar in proceedings that relate to assets of guarantor

3

Persons Ineligible to be Resolution Applicants

Current Status:

Section 29A of IBC lists out persons who are not eligible to submit resolution plans with respect to corporate debtors

Section 29A also specifies that any person acting jointly or in concert with an ineligible person is not eligible to submit a resolution plan

Srinivas Committee Report:

Recommends that Section 29A be amended to ensure that only those persons who contributed to defaults of the company or are otherwise undesirable are rendered ineligible to submit resolution plans

Recommends that persons who are just remotely related or connected to persons ineligible under Section 29A not be deemed ineligible to submit resolution plans

4

Re-Calibration of Voting Threshold

Voting threshold under various sections of IBC

Current Status:

Section 30 (4) requires 75% of voting share of financial creditors to approve resolution plan

Srinivas Committee Report:

Recommends that the voting threshold in Section 30 (4) be reduced to 66% of voting share of financial creditors

Current Status:

Section 12(2) requires 75% of voting share of financial creditors for any extension of corporate insolvency resolution process beyond 180 days

Srinivas Committee Report:

Recommends that the voting threshold in Section 12 (2) be reduced to 66% of voting share of financial creditors

5

Re-Calibration of Voting Threshold

Voting threshold under various sections of IBC

Current Status:

Sections 22(2) and 27(2) requires 75% of voting share of financial creditors to replace or appoint resolution professional

Srinivas Committee Report:

Recommends that the voting threshold in Sections 22(2) and 27(2) be reduced to 66% of voting share of financial creditors

Current Status:

Section 33 (2) requires 75% of voting share of financial creditors for passing a resolution for liquidation

Srinivas Committee Report:

Recommends that the voting threshold in Section 33 (2) be reduced to 66% of voting share of financial creditors

5

Expansion of Scope of Essential Goods And Services

Current Status:

To enable corporate debtor to continue as a going concern, IBC requires continuation of supply of essential goods or services to corporate debtor during the Moratorium period

"Essential Goods and Services" are defined as electricity, water, telecommunication services and information technology services

Srinivas Committee Report:

Recommends that NCLT be empowered to allow expansion of the scope of essential goods and services beyond the definition upon an application by the resolution professional

6

Withdrawal of Application for Resolution of Corporate Insolvency

Current Status:

Once an application for resolution of corporate insolvency has been filed and has been admitted by the NCLT, it cannot be withdrawn.

Srinivas Committee Report:

Recommends insertion of a provision for withdrawal of application for corporate insolvency resolution process, even after admission of such application, subject to satisfaction of condition below

90% of the voting share of the committee of creditors (constituted by the interim resolution professional) has to approve such action

7

Special Resolution for Voluntary Corporate Insolvency Resolution

Current status:

Section 10 of IBC permits initiation of corporate insolvency resolution process by

a Corporate Debtor

any of its authorised member/partner

any individual in charge of such corporate debtor or who has control over financial and supervisory control over the corporate debtor

Srinivas Committee Report:

Recommends special resolution to be passed by shareholders; or

Resolution passed by at least 3/4th of the total number of partners of the corporate debtor;

for a corporate debtor to initiate corporate insolvency resolution process under Section 10

8

Timeline for procuring Statutory Approvals

Current Status:

IBC requires successful bidder to obtain necessary clearances from Government of India and relevant State Government(s) for successful implementation of a resolution plan.

However, IBC does not stipulate timelines within which such clearances are to be obtained.

Srinivas Committee Report:

Recommends a timeline of 1 year or such time as specified in the relevant law, within which successful bidder must obtain necessary statutory clearances

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Namrata Bhagwatula at namrata@gamechangerlaw.com