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23
November 2017
Insolvencypro (The Total Investment & Insurance
Solutions)
An
ordinance that bars wilful and habitual defaulters from bidding for stressed
assets was promulgated on Thursday with tough provisions to prevent any
attempts by them to regain control of companies in difficulty.
President Ram Nath Kovind on Thursday signed
the ordinance that amends the Insolvency and Banking Code (IBC) 2016 which was
sent to him by the Union Cabinet on Wednesday. The Total Investment & Insurance Solutions
Breaking
the news at a meeting of select editors, Finance Minister Arun Jaitley said:
"The ordinance disentitles the big defaulters and makes it difficult for
them to bid for distressed assets which was of their own making."
He said
the ordinance does not ban them from bidding for the stressed assets but would
make it difficult for them and disentitles them from doing it.
Giving an example he said: "You can't
say my account is NPA (non performing asset) but I have to bid. This is
ethically completely unacceptable to the Indian political system. The Total Investment & Insurance
Solutions
"I also have a political cost to pay.
You can't be a stressed asset and you want to join the process for
bidding." The Total
Investment & Insurance Solutions
He said one solution could be that the NPA
holder at least comes forward and services the interest by Rs 10 to Rs 15
-thousand crore in an asset of, say, Rs one lakh crore. The Total Investment & Insurance Solutions
The
Ordinance aims at putting in place safeguards to prevent unscrupulous,
undesirable persons from misusing or vitiating the provisions of the Code.
The amendments aim to keep-out such persons
who have wilfully defaulted, are associated with non-performing assets, or are
habitually non-compliant and, therefore, are likely to be a risk to successful
resolution of insolvency of a company. The Total Investment & Insurance Solutions
In
addition to putting in place restrictions for such persons to participate in
the resolution or liquidation process, the Amendment also provides such check
by specifying that the Committee of Creditors ensure the viability and
feasibility of the resolution plan before approving it. The Insolvency and
Bankruptcy Board of India (IBBI) has also been given additional powers.
It may
be recalled that the Regulations by the IBBI were also amended recently to
ensure that information on the antecedent of the applicant submitting the
Resolution Plan along with information on the preferential, undervalued or
fraudulent transactions are placed before the Committee of Creditors in order
for it to take an informed decision on the matter.
An official release said steps towards
improving compliances, actions against defaulting companies to prevent misuse
of corporate structures for diversion of funds, reforms in the banking sector,
weeding-out of unscrupulous elements from the resolution process are part of
ongoing reforms initiated by the Government. The Total Investment & Insurance Solutions
These would help strengthen the formal
economy and encourage honest businesses and budding entrepreneurs to work in a
trustworthy, predictable regulatory environment, it said. The Total Investment & Insurance
Solutions
The
Ordinance amends Sections 2, 5, 25, 30, 35 and 240 of the Code, and inserts new
Sections 29A and 235A in the Code.
The
amendments would facilitate the commencement of Part III of the Code relating
to individuals and partnership firms in phases.
The
changes in Section 5 of the Code, which define "Resolution Plan" and
"Resolution Applicant", are amended to provide clarity.
Section
25(2)(h) of the Code is amended to enable the Resolution Professional, with the
approval of the Committee of Creditors (CoC), to specify eligibility conditions
while inviting Resolution Plans from prospective Resolution Applicants keeping
in view the scale and complexity of operations of business of the Corporate
Debtor to avoid frivolous applicants.
A new
Section 29A makes certain persons ineligible to be a Resolution Applicant.
Those being made ineligible include Willful Defaulters, those who have their
accounts classified as Non-Performing Assets (NPAs) for one year or more and
are unable to settle their overdue amounts include interest thereon and charges
relating to the account before submission of the Resolution Plan.
It also
includes in its ambit those who have 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.
Besides, it will also include perosns who are
Promoters or in management of control of the Resolution Applicant, or will be
Promoters or in management of control of Corporate Debtor during the
implementation of the Resolution Plan, the holding company, subsidiary company,
associate company or related party of the above referred persons. The Total Investment & Insurance
Solutions
It has
also been specifically provided that CoC shall reject a Resolution Plan, which
is submitted before the commencement of the Ordinance but is yet to be
approved, and where the Resolution Applicant is not eligible as per the new
Section 29A. In such cases, on account of the rejection, where there is no
other plan available with the CoC, it may invite fresh resolution plans.
Section
30(4) is 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 IBBI, before according its approval.
The
Sale of Property to a person who is ineligible to be a Resolution Applicant
under Section 29A has been barred through the amendment in Section 35(1)(f).
In
order to ensure that the provisions of the Code are enforced effectively, the
new Section 235A provides for punishment for contravention of the provisions
where no specific penalty or punishment is provided. The punishment is fine
which shall not be less than one lakh rupees but which may extend to two crore
rupees.The Total Investment &
Insurance Solutions
