Insolvency Code: What’s new?

Insolvency Code: What’s new?

News:

Recently, the President of India approved the promulgation of the Insolvency and Bankruptcy code (Amendment) Ordinance 2018

Important Facts:

Recent Changes:

1. Inclusion of home-buyers in the category of financial creditors

• Homebuyers (either as an individual or group) can initiate insolvency proceedings against errant builders
• Homebuyers shall have the right to be represented in the committee of creditors (CoC)
• The CoC takes the key decision on revival of the company or its liquidation.

2. Definition of a related party in relation to an individual:

• Previously, related party was defined only with reference to a company facing insolvency
• After the amendment, related party is defined in relation to an individual running the firm
• They would be barred from bidding for the firm under the resolution process

3. Changes in voting share of the committee of CoC

• Previously the requirement for extending the insolvency process beyond 180 days till 270 days and for appointment of the resolution professional (one who oversees the process) was 75%.
• After the amendment, it is 66%
• Withdrawal from the insolvency process is permitted. It requires the approval of 90% of voting share of the CoC

4. If Financial creditor is a related party:

• Financial creditor includes banks and other financial institutions
• If financial creditor or its authorised representative is a related party to the company facing insolvency, it shall not have any participation or voting during CoC meeting
• Exemption: If financial creditor has become a related party due to conversion or substitution of debt to equity shares or instruments convertible into equity shares before the starting date of insolvency proceedings.

5. Moratorium not to be available to the guarantors of a company:

• During the moratorium period no parallel proceeding are allowed for a company under insolvency
• Guarantors are persons who provide guarantee for the loans availed by the corporate debtor.
• Previously there was no clarity on whether this moratorium period is available to guarantors of the company
• According to the amendment, moratorium is not available to guarantors

6. Filling of application by company:

• A company can file an insolvency application. For filing of application it requires to seek three-fourth of the stakeholders’ approval.

7. Operational creditor to confirm dues only if available

• Operational creditors are suppliers of the company.
• Previously it was mandatory for them to provide certificate from the financial institution managing their accounts regarding pending dues from the company. Now they have to confirm dues only if it is available

8. Tenure of an insolvency resolution professional

• Under insolvency process, at first an interim resolution professional (IRP) is appointed and then, a resolution professional (RP).
• The IRP had a fixed tenure of 30 days
• According to the amendment, tenure of the IRP would continue till the appointment of the RP
• Written consent from RP for appointment in office