Rajya Sabha passes IBC amendment, restoring primacy of lenders in insolvency cases

NEW DELHI: The Rajya Sabha on Monday approved amending the three-year-old Insolvency and Bankruptcy Code (IBC), providing clarity about preference to secured lenders over operational creditors and giving lenders explicit authority over distribution of proceeds of auction of loan defaulting companies.nnReplying to a debate on the Insolvency and Bankruptcy Code (Amendment) Bill 2019, Finance Minister Nirmala Sitharaman said the changes being brought in now are in response to events that eroded legislative intent of the IBC.nnShe referred to the Essar Steel insolvency case where the lenders and operational creditors have been treated at par by the bankruptcy court for distribution of auction proceeds.nnThe amendments give committee of creditors of a loan defaulting company explicit authority over the distribution of proceeds in the resolution process and fixes a firm timeline of 330 days for resolving cases referred to the IBC.nnThese are in response to “newer challenges coming up,” she said adding the government speedily came up with the amendments in response to the situation developing.nnThe National Company Law Appellate Tribunal (NCLAT) had recently ruled in the Essar Steel Ltd’s case that the Committee of Creditors (CoC) had no role in distribution of claims and brought lenders (financial creditors) and vendors (operational creditors) on a par.nnThe government is amending IBC as “very serious interpretative problems were coming,” she said referring to the Essar Steel insolvency case.nnThe amendment now equate distribution of amounts under a resolution plan with the manner it’s allowed in case of liquidation, maintaining the hierarchy of lenders. The change will be retrospective, making it applicable for ongoing cases.nnShe quoted Supreme Court judgement to say that defaulters paradise is lost through IBC.nnAmendments are clarificatory in nature and the “intent of the government is maximisation of value while simultaneously adhering to strict timelines,” she said.nnSitharaman said some of 12 big loan defaulting companies have been pending for more than 600 days since the insolvency proceedings started.nnFinancial creditors are on average getting 43 per cent of dues as against getting nothing if defaulting companies were never taken up under IBC, she.nnStating that the spirit behind the IBC is that money not being forgotten, assets are not forgotten and workers are not forgotten, she said defaulting companies have been revived after insolvency proceedings.nnOn questions on any bidders not carrying out the resolution plan, she said criminal prosecution is possible in such cases.nnThe government will not make any further claim after resolution plan is approved, she said in response of the successful bidder having indemnity. Also, there will be no criminal cases against successful bidder for fraud by previous promoters.nnSource: Press Trust of India