Following the finance minister’s speech proposing the Union Budget 2022, Parliament is likely to consider further amendments to the Insolvency and Bankruptcy Code 2016 (IBC) in 2022.
The finance minister’s speech followed two notices inviting public comments, that the government released at the end of 2021. Together, these suggest that the government is considering:
The government’s proposals relating to avoidance or improper trading actions and allowing out-of-court closure of a voluntary liquidation process will enable swifter closures of voluntary liquidation processes and will strengthen the provisions relating to avoidance or improper trading actions. This will provide much-needed legal clarity for all stakeholders.
Similarly, the government’s proposal to adopt the Model Law will provide certainty and clarity regarding cross-border issues (which have previously arisen and been dealt with in an ad hoc manner in cases such as Jet Airways). The government will do this by putting forth a framework that facilitates:
However, while adopting the Model Law, the government should consider resolving various issues that may make it difficult to implement the law. For example, the definition of “foreign proceedings” requires that “reorganisation” proceedings have the same meaning as “resolution” under the IBC. Since resolution requires the rescue of the company as a whole, this may exclude various “business sale-style” proceedings from being recognised. Moreover, the government is proposing to extend the application of the IBC to companies not incorporated in India but having a physical office, so that they can undergo the CIRP and liquidation. However, various features of these procedures may need to be altered when they are applied to foreign incorporated companies, particularly whose “centre of main interests” lies outside India. In such cases it may not be feasible to seek resolution plans for the whole company under the IBC, or require entry into liquidation only after failure of the CIRP where the rest of the company has been put into liquidation abroad. Modifications to these important features of the CIRP and liquidation process should be considered and consulted on before the IBC is made applicable to such entities.
Finally, amendments relating to shortening timelines for admission of a CIRP and approval of a resolution plan indicate that the government is cognisant of the “timeliness” problem that has arisen in the IBC. However, this issue is unlikely to be resolved by legislative amendments, which the government has seen fail many times in the past. The government should, therefore, work with NCLTs to increase the number of judges and build capacity for swifter disposal of cases, instead of attempting to address this issue legislatively.
This article was originally published in Lexology on 4 March 2022 Co-written by: Misha, Partner; Shreya Prakash, Senior Associate. Click here for original article
Contributed by: Misha, Partner; Shreya Prakash, Senior Associate
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