The Insolvency and Bankruptcy Code (IBC) could soon see some strengthening, including a cross-border insolvency framework and measures to speed up resolution of cases, with the matter set to be taken up in the upcoming budget session of parliament, government insiders said.
The proposed legislative changes also include a code of conduct for the committee of creditors (CoC) that decides on insolvency resolution proposals.
The proposed cross-border insolvency legislation will pave the way for lenders to include foreign assets of a bankrupt entity in their recovery proceedings, including offshore personal assets of promoters where they have offered personal guarantees, the sources said.
A senior official said the draft legislation has incorporated feedback from stakeholders and recommendations by a parliament standing committee. “With all relevant views included, we are now in a better position to formulate the regulation,” the person told ET.
The corporate affairs ministry (MCA), which is in the process of finalising the bill, expects to roll out the regime from the next financial year with certain safeguards, officials said.
What to expect
- Cross-border insolvency to be in line with global model law
- MCA deliberated and examined all suggestions
- Formulating comprehensive framework for effective implementation
- Aim to roll out the regime next financial year
- May amend CIRP under IBC to expedite resolution process
- IBBI to enforce Code of Conduct for creditors committee
According to them, the cross-border legislation will be broadly in line with the international model law provided by the United Nations Commission on International Trade Law (Uncitral) that lays down a basic framework for cooperation between domestic and foreign courts.
The legislation will allow courts of countries that have adopted the model law to execute orders against defaulters.At least 50 countries including some advanced economies are in the process of adopting the model law. “By adopting it, we will automatically get access to all those nations and don’t need to have a separate agreement with them,” said the official quoted above.
However, the regulation will have certain terms that will safeguard the public interest considerations that foreign courts may have, he said.
Sources said the proposed law will not be applicable to companies in the critical sector. Some key strategic sectors could also be excluded from its ambit, they said.
Speedy Resolution
Some changes to the corporate insolvency resolution process (CIRP) under the IBC are under consideration to make it more robust and to cut delay so that it could prevent further erosion of the value of stressed firms.
“We are expecting the feedback on the proposed changes by the end of this week. Accordingly, we will decide the final terms which could probably take two weeks’ time,” said the official cited above.
If it goes through, then the National Company Law Tribunal (NCLT) will have only 30 days to either accept or reject a resolution plan.
If the adjudicating authority fails to do so within a month, it has to “record reasons in writing for the same”, according to the MCA draft floated on December 24.
Code of Conduct for CoC
The much-debated code of conduct for CoC could also be a part of the IBC amendments in the upcoming budget session. It seeks to make the insolvency process more transparent.
“We are considering empowering insolvency regulator IBBI (Insolvency and Bankruptcy Board of India) to enforce the code. But it won’t pass orders against banks – instead, IBBI will need to follow a mechanism that MCA will lay down,” a person privy to the plan said.
According to him, the Reserve Bank of India (RBI) regulates banks, which can take cognizance and accordingly act against them. There will be a mechanism to allow IBBI to raise matters concerning violation of the code before the RBI, the person said.
An extensive discussion has been held between MCA and the finance ministry on the code, he said. “There is a combined effort on part of the Department of Financial Services, MCA and the respective regulators to implement the code, and the mechanism will ensure its smooth implementation.”
IBBI had last year put out a code of conduct for CoC after there was criticism on excessive haircuts CoC had approved in some cases.
