The government is set to further rework reforms planned in the Insolvency and Bankruptcy Code (IBC) to step up the pace of salvaging sinking businesses and open up the distressed assets market in India to overseas creditors to recover their dues.
A bill to amend IBC was originally planned and listed for introduction in the monsoon session of Parliament, but it has now been decided to fine-tune the bill before it is introduced in the winter session, a person familiar with the discussions in the government said.
As part of the revised proposals, more safeguards will be added where substantive changes are planned including in the proposed cross-border insolvency regime, the person said. The safeguards will be weaved into a new chapter on cross-border insolvency to be included in IBC that will make participation of overseas creditors in legal proceedings in Indian tribunals smooth and efficient.
“All efforts are being made so that the Bill can be tabled in the winter session of Parliament. Given that public consultation has been done multiple times, reworking of the proposals will be an internal exercise” the person said on condition of anonymity.
Rolling out a cross-border insolvency regime is seen by experts as a milestone in bankruptcy reform as it could expedite rescue of businesses with assets and liabilities in multiple jurisdictions.
Currently, cross-border insolvency is handled through cooperation among bankruptcy courts in India and in other countries but in the proposed regime, legal action by foreign creditors will shift to Indian tribunals. Indian creditors will also be able to attempt recovery of overseas assets of defaulters more easily.
Experts said the proposed amendments need to address several aspects of the Code to make it more efficient.
One of them is related to a Supreme Court ruling in July that in essence said that bankruptcy tribunals have the discretion to look into certain factors other than the payment default by the corporate debtor while deciding on admitting a bankruptcy petition by a financial creditor. The ruling that came in the case of a power company cited the example of a favourable award that the defaulting company received from the electricity tribunal, which if implemented, would let the company sail through its financial troubles. This has raised questions about the sufficiency of a payment default for admission of a bankruptcy petition.
With the Supreme Court pronouncement opening a gate for defence against insolvency proceedings other than based on default, it needs to be made clear in the IBC that the Adjudicating Authority “must” admit insolvency if payment default is established, said Anoop Rawat, partner (insolvency and bankruptcy) at law firm Shardul Amarchand Mangaldas & Co.
Mandating preparation of a good qualitative information memorandum based on which investors take decisions to make bids is also top on the wish list of experts and bankruptcy practitioners.