Cabinet approves changes in Insolvency & Bankruptcy code
24 November, 2017, 01:12
President Ram Nath Kovind on Thursday approved the ordinance for amending the bankruptcy code, which will make it hard for insolvent promoters to acquire stressed companies. Its promoters have openly bid for the assets of its 10-million-tonne plant in Hazira, Gujarat, along with a Russian partner, VTB Bank.
"The Resolution Professional has to also submit details in respect of transactions observed or determined, if any, covered under Section 43 (Preferential Transactions); Section 45 (Undervalued Transactions); Section 50 (Extortionate Credit Transactions); Section 66 (Fraudulent Transactions) under Insolvency and Bankruptcy Code, 2016", it added.
Under Indian law, wilful defaulters are classified as firms or individuals who own large businesses and deliberately avoid repayments.
Media reports have said that in some cases, the companies' erstwhile promoters, or the main shareholders, may be looking to bid for the companies again.
Cabinet approves ordinance for changes in insolvency code
Earlier this month, the government had announced that insolvent corporates seeking a resolution plan under the new law will now be subject to more stringent tests regarding creditworthiness and credibility by the Insolvency and Bankruptcy Board of India (IBBI). To be sure, it does provide a window of opportunity to promoters such as the Ruias of Essar Steel and the Singals of Bhushan Steel to prevent their companies from slipping out of their grasp but only if they pay up dues to lenders before resolution plans are put in place. The ordinance also allows the committee of creditors to reject any resolution plan involving ineligible parties even if it has already been presented. The ordinance amends six sections besides inserting two new sections in the bankruptcy code, which has been operational for less than a year.
The government passed an executive order that aims to "keep-out such persons who have wilfully defaulted, are associated with non-performing assets, or are habitually non-compliant and, therefore, are likely to be a risk to successful resolution of insolvency of a company", the corporate affairs ministry said in a statement.
The Cabinet took the view that it is necessary to ensure that promotors of the corporate debtors who are found to have contributed to the default need to be prevented from regaining control of the company through backdoor entry in the garb of a resolution applicant. "We will bid for assets if permitted". On whether they would be bidding in the auction process, the official said as per the current norms, "the promoters' proposal may not find a place in the final selection". JSW Steel Chairman Sajjan Jindal said the Government's move towards streamlining the IBC process will facilitate healthy competition.
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