{"id":101926,"date":"2021-04-17T10:31:01","date_gmt":"2021-04-17T05:01:01","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=101926"},"modified":"2021-04-17T10:31:01","modified_gmt":"2021-04-17T05:01:01","slug":"a-balanced-approach-under-ibc-amendment-ordinance-2021","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/a-balanced-approach-under-ibc-amendment-ordinance-2021\/","title":{"rendered":"A Balanced Approach Under IBC Amendment Ordinance 2021"},"content":{"rendered":"<p><b>Synopsis<\/b><span style=\"font-weight: 400;\">:\u00a0<\/span><span style=\"font-weight: 400;\">The new Insolvency and Bankruptcy Code amendment ordinance 2021 shows a shift from a creditor-centric approach towards a more balanced approach. Under the new approach, both promoters and creditors are incentivized to reach a more acceptable solution.\u00a0\u00a0<\/span><\/p>\n<p><b>Background<\/b><span style=\"font-weight: 400;\">:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The President has promulgated the <a href=\"https:\/\/forumias.com\/blog\/insolvency-and-bankruptcy-code-ordinance-2021-explained-pointwise\/\">Insolvency and Bankruptcy Code (Amendment) Ordinance 2021<\/a>.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">It marks a shift from earlier approaches against the promoter and focussed on the creditor. Under this, the creditor was given the main control over the insolvency process while the promoter hardly had any say.<\/span><\/li>\n<\/ul>\n<p><b>About the amendment<\/b><span style=\"font-weight: 400;\">:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">It tries to address the structural weakness in IBC by allowing a <a href=\"https:\/\/forumias.com\/blog\/pre-pack-insolvency-resolution\/\">pre-packaged insolvency resolution process<\/a> (PPIR).<\/span>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">PPIR is a form of restructuring that allows creditors and debtors (or promoters) to work on an informal plan within the IBC structure.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">It is done before the commencement of insolvency proceedings.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Once accepted by creditors, the plan must be presented to the National Company Law Tribunal (NCLT) for approval.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The process is available only for MSMEs (Micro, small and medium enterprises).<\/span><\/li>\n<\/ul>\n<p><b>Difference from earlier approach:<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The amendment has <\/span><b>made the process less promoter averse.<\/b><span style=\"font-weight: 400;\"> Now PPIR will ensure promoters are able to retain their control over their business.<\/span>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Earlier, the control was given to a resolution professional. He\/she was appointed to manage the affairs of the company during the insolvency process.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The promoters did not have control due to cases of corruption, crony capitalism, and other fraudulent activities tagged with them. This undermined the creditor&#8217;s interest and sanctity of the resolution process.\u00a0<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Further, the<\/span><b> new process doesn\u2019t give the scope of open bidding <\/b><span style=\"font-weight: 400;\">that was available earlier. This might hinder price discovery and value maximization for creditors.<\/span><\/li>\n<\/ul>\n<p><b>Benefits of the new amendment<\/b><span style=\"font-weight: 400;\">:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><b>More powers to Promoters: <\/b><span style=\"font-weight: 400;\">They get to hold on to their firms, and exit the process with more manageable obligations.<\/span><\/li>\n<li style=\"font-weight: 400;\"><b>Prevents Closure of Genuine Firm:<\/b><span style=\"font-weight: 400;\"> With greater promoter control, the genuine firms will not get closed, like the ones who are not performing due to pandemic stress or other genuine barriers.<\/span>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Further, the IBC process suffers from <\/span><b>a liquidation bias<\/b><span style=\"font-weight: 400;\">. Around 46.5 % of all cases under IBC have ended up in liquidation. While only 13.1% witnessed a resolution.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\"><b>Creditor Incentivisation:<\/b><span style=\"font-weight: 400;\"> As past data shows that liquidation value is only a fraction of the creditor\u2019s claims and the majority of IBC cases end up in liquidation.\u00a0<\/span>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The new process can help the creditors get better value for their debt. Especially economic distress when there are limited buyers of stressed assets.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\"><b>Better Coverage<\/b><span style=\"font-weight: 400;\">: The PPIR process doesn\u2019t fall under the central bank\u2019s restructuring framework. It covers all financial creditors as opposed to RBI\u2019s restructuring schemes which deal only with banks.<\/span><\/li>\n<li style=\"font-weight: 400;\"><b>Prevents future scrutiny<\/b><span style=\"font-weight: 400;\">: PPIR involves approval by a judicial seal that prohibits any future questioning by investigative agencies.<\/span><\/li>\n<\/ul>\n<p><b>Way Forward<\/b><span style=\"font-weight: 400;\">:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The PPIR process gradually should<\/span><b>\u00a0made available to all corporate debtors.<\/b><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The government can also <\/span><b>relax the terms of Section 29A<\/b><span style=\"font-weight: 400;\"> of IBC in order to widen the list of possible buyers.<\/span>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The section disqualifies those who had contributed to the downfall of the corporate debtor or were unsuitable to run the company.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p><b>Source<\/b><span style=\"font-weight: 400;\">: <a href=\"https:\/\/indianexpress.com\/article\/opinion\/columns\/insolvency-and-bankruptcy-code-amendments-modi-govt-7275456\/\" target=\"_blank\" rel=\"noopener\">Indian Express<\/a><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Synopsis:\u00a0The new Insolvency and Bankruptcy Code amendment ordinance 2021 shows a shift from a creditor-centric approach towards a more balanced approach. Under the new approach, both promoters and creditors are incentivized to reach a more acceptable solution.\u00a0\u00a0 Background: The President has promulgated the Insolvency and Bankruptcy Code (Amendment) Ordinance 2021. It marks a shift from&hellip; <a class=\"more-link\" href=\"https:\/\/forumias.com\/blog\/a-balanced-approach-under-ibc-amendment-ordinance-2021\/\">Continue reading <span class=\"screen-reader-text\">A Balanced Approach Under IBC Amendment Ordinance 2021<\/span><\/a><\/p>\n","protected":false},"author":10322,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1230,9],"tags":[1278],"class_list":["post-101926","post","type-post","status-publish","format-standard","hentry","category-9-pm-daily-articles","category-public","tag-eco_4","entry"],"jetpack_featured_media_url":"","views":{"total":0,"cached_at":"","cached_date":1704903733},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/101926","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/10322"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=101926"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/101926\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=101926"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=101926"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=101926"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}