- The Bill has amended the Insolvency and Bankruptcy Code, 2016 and replaced the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018
- The term Insolvency means a situation where individuals or companies are unable to repay their outstanding debt
- When a company will bankrupt, the financial creditors have the first right over the proceeds of assets
The Lok Sabha has passed the Insolvency and Bankruptcy Code (Second Amendment) Bill, 2018 (IBC Bill, 2018) on 31st July 2018. The IBC Bill, 2018 was introduced by Mr. Piyush Goyal, the Minister of Finance and Corporate Affairs on 23rd July 2018. The Bill has amended the Insolvency and Bankruptcy Code, 2016 and replaced the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018 (Ordinance, 2018) which was promulgated on 6th June 2018. The aim of the bill is to bring relief to the home buyers and Micro, Small and Medium Enterprises (MSMEs). The term Insolvency means a situation where individuals or companies are unable to repay their outstanding debt.
Major points of Bill are-
- An allottee under a real estate project is considered as a financial creditor. An allottee includes any person to whom a plot, apartment; or building has been allotted, sold; or transferred by a promoter (real estate developer or development authority).
- When a company will bankrupt, the financial creditors are going have the first right over the proceeds of assets. Now, buyers are being treated as financial creditors, therefore, they would also a claim in the assets' sale as well as in the bankruptcy proceedings. However, Ordinance, 2018 was protected the buyers when builders declare bankruptcy for under-construction real estate projects.
- The voting threshold for routine decisions taken by the CoC has been reduced from 75% to 51%.
- Allows the withdrawal of a resolution application submitted to the NCLT under the Code. This decision can be taken with the approval of 90% of the committee of creditors.
- Providing the ineligibility criteria for resolution applicants regarding NPAs.
- Specify regarding the Representative of financial creditors that in certain cases such as when the debt is owed by a class of creditors, the financial creditors will be represented on the committee of creditors (Coc) by an authorized representative. These representatives will vote on behalf of the financial creditors as per prior instructions received from them.
- Under the Bill, remuneration is a part of the insolvency resolution costs. However, under the Ordinance, the remuneration payable to the representative was to be jointly borne by the financial creditors.
- The Bill adds the proviso regarding Implementation of resolution plans that if the resolution plan contains a provision for acquisition or merger of enterprises, then the resolution applicant will obtain the approval of the Competition Commission of India (CCI). However, the Ordinance specifies that the NCLT must ensure that a resolution plan has provisions for effective implementation before approving it and when resolution plan has been approved then, the resolution applicant must obtain any other approvals which required by law within a period of one year from such approval.