Latest IBC amendments

There are two things certain in life - death and taxes, a wise man once said. For India, I think we should add GST and IBC amendments to this list.

Insolvency and Bankruptcy Board of India (IBBI) has amended the IBBI (Insolvency Resolution Process for Corporate Persons/ Liquidation Process) Regulations, 2016 with the intent to close the doors for former promoters from participating in the insolvency/bankruptcy proceedings.

With the inception of new set of amendments to IBBI regulations – Ineligible people are expressly prohibited from indulging in compromise/arrangement associated with the liquidation process.

Secured creditor has also no right to offer secured assets to ineligible person who come under the ambit of Insolvency and Bankruptcy Code (IBC) – This prospect is introduced to overturn a decision passed by the National Company Law Tribunal (NCLT) in this regard.

Synopsis of NCLT decision is that there is no prohibition on sale of secured assets to former promoters of a corporate debtor provided such sale is performed by a secured creditor pursuant to IBC provisions.

The new wave of IBBI amendments will put an end to the provision established by the aforesaid NCLT decision – Accordingly, No secured creditor will be permitted to sell/transfer secured assets of company facing liquidation process to ineligible persons (including former promoters) under the IBC.

Apparently, new set of IBBI amendments are in line with the objective of IBC and plug the existing loopholes in the IBC setup and shun all the doors to former promoters/ineligible persons from making any attempt to gain control over the assets of company undergoing liquidation process.

As of now promoters has no straight root to gain control over the assets of the company which is indulged in resolution process – As a consequence, promoters/ineligible persons are resorting to back door practices with the utilization of the loopholes in the law to take control of the financially stressed companies via procuring the secured assets from the secured creditors.

The new IBBI amendments have come at very crucial juncture in the working of the IBC framework and will facilitate IBBI to accomplish the objectives of IBC.

The new amendments will undoubtedly plug some more loopholes for promoters from procuring secured assets of financially stressed company under the IBC – With the inception of these amendments Promoters/ineligible persons will no longer have any means (frontend/backend) to be part of any compromise/settlement process under the IBC.

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Research and inputs by Paruchuri Baswanth Mohan