Insolvency Bill in Lok Sabha: Promoters of defaulting firms get a month to clear dues

Defaulting promoters who had submitted resolution plans for insolvent companies before an Ordinance in November, which made them ineligible to do so without clearing dues first, will get up to a month to come clean to be eligible to bid for the stressed firms.

A Bill introduced in the Lok Sabha on Thursday to replace the ordinance on the Insolvency and Bankruptcy Code (IBC), 2016, however, suggests this relaxation will be applicable only to defaulters in those cases where the resolution period has not exceeded the stipulated timeframe. The IBC allows six months (or nine months, if the adjudicating authority has granted a 90-day extension) to approve a resolution plan.

Also, as pointed out by Manoj Kumar, partner and head (M&A and insolvency resolution services) at consultancy firm Corporate Professionals Capital, the Bill has made certain relaxations: “Earlier any person who has given a guarantee in relation to any company which is admitted under IBC would have been debarred from bidding for any of the companies under the insolvency resolution process. But now the disqualification would be limited to the company in which he has given the guarantee, that too only if it was given in favour of the applicant who took the company for the insolvency admission.”

The Bill allows asset reconstruction companies, banks and alternative investment funds registered with the Securities and Exchange Board of India to bid for insolvent companies, as they will not be covered under definitions of holding or subsidiary companies, associate companies or related persons. Most of the other provisions of the Bill are in sync with the earlier ordinance.

In line with provisions of the ordinance, the Bill also makes it clear that defaulters, including promoters, whose accounts have been classified as non-performing assets for at least a year, will be allowed to submit a resolution plan only after clearing the overdue amounts with interests and other charges. Finance and corporate affairs minister Arun Jaitley introduced the Bill in Lok Sabha.

In November, the government came up with the ordinance to prevent unscrupulous elements, including such promoters and wilful defaulters, from misusing the provisions of the IBC.

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