The Insolvency and Bankruptcy Code of 2016 was drafted with the purpose to focus on creditor drove insolvency resolution, aiming to improve the handling of conflicts between creditors and debtors and increase the availability of credits. The code also aimed to set a limit between malfeasance and business failure or collapse.
Since the incorporation of the Insolvency and bankruptcy code of 2016, there have been certain changes and amendments in the code. The recent change was made on 26th July 2021 when Finance Minister of India and Minister of Corporate Affairs, Nirmala Sitaraman introduced the amended bill in the parliament amid chaos. The bill was passed without any discussion in the parliament as the opposition did not participate in the parliamentary proceedings.
The amendment was made to improve and provide an efficient insolvency resolution framework for small, micro, and medium enterprises (MSMEs) under the code. The earlier amendment was made for easing the process of Insolvency and making sure that the creditors don’t have to worry about the debtors and the credits are easily available.
The new amendment focused on small, micro, and medium enterprises and improving the services for the creditors and chance of reviving the enterprise. With the new amendment several sections were changed, new sections were, and a new chapter was added in the Insolvency and Bankruptcy Code of 2015. The section added are section-11A, 67A, and 77A, sections amended are section- 4, 5, 11, 33, 34, 61, 65, 77, 208, 239 & 240, and new chapter was added on Pre-Packaged Insolvency Resolution.
What is a Pre-packaged Insolvency Resolution?
Pre-packaged Insolvency Resolution is a process wherein there is a direct agreement between the secured creditors and existing owners or outside investors. In a prepacked solution, financial creditors will agree to terms with the promoters or a potential investor and seek approval of the resolution plan from the National Company Law Tribunal. The prepackaged resolution system will also reduce the delay in resolution as earlier through CIRP the process used to get delayed beyond 270 days but with the new amendment, it has been limited to a maximum of 120 days wherein stakeholders will have to bring a resolution plan before the NCLT within 90 days.
What changes were made in the new amendment?
- Section 2A is added, where the definition of the base resolution plan was added.
- The procedure and provisions relating to Pre-packaged Insolvency Resolution.
- Amendment to make consequential changes in sections.
- A new definition was added to the code for pre-packaged insolvency resolution.
- Section-11 amended wherein certain persons are disentitled to file the initiation of the corporate insolvency resolution process.
- Section 11 A is inserted, wherein the manner of disposal of application for initiation of the pre-packaged insolvency resolution process and corporate insolvency resolution process against the same debtor.
- Section 53A added, where the corporate debtor should issue a declaration to issue a pre-packaged resolution process.
- Section 54B added, were in duty would be performed by insolvency professional, from the date on which his name is proposed in the declaration and is approved by the unrelated financial creditor of the company or enterprise.
- Section 54C added, wherein the adjudication authority will have to either approve the application or reject the same with 14 days of the filing of such application.
- The moratorium should be announced by the adjudicating authority and sections 14(1) and section 14(3) shall apply to the pre-packaged resolution process.
- The process is to be completed within 120 days, wherein 90 days have been given to file the resolution plan before NCLT.
- The fees and expenses shall be subject to limitations by the committee of creditors.
- Section-63 added, wherein penalty for fraudulent and malicious initiation of the pre-packaged resolution process is provided.
- Section 77A was added to provide punishment for the offenses relating to pre-packaged insolvency resolution.
- Section 240A amended, wherein exemptions to apply Section 29A for micro, small and medium enterprises to the pre-packaged insolvency resolution process.
The amendment will boost and target small, micro, and medium-sized enterprises to expand their business without worrying about the creditors and insolvency process. This way the MSMEs can grow in the market, take risks accordingly and strengthen the market. Not only that prepackaged resolution is an effective mechanism in arriving at quick for distressed companies and the regime should be rolled out to all corporations over time as legal issues are settled through case laws.