Insolvency and Bankruptcy Code amendment: Promoters of SMEs may get chance to bid for stressed companies

The Narendra Modi government may include a few more changes in the Insolvency and Bankruptcy Code or IBC ordinance in the finance bill when it is tabled in Parliament during the Budget session, according to a top official quoted in this  Economic Times report. The IBC was put into effect in May 2016 and the authorities started to invoke the act after six months in December that year. In November this year, the Union Cabinet through an ordinance had approved some sweeping changes in the IBC, 2016 and barred promoter of an ‘insolvent’ or ‘bankrupt’ company from taking part in the final bidding process for stressed assets as part of corporate resolution process. [caption id=“attachment_4269885” align=“alignleft” width=“380”] Representational image.[/caption] After the new provision has been incorporated in the IBC ordinance, a promoter of a company now cannot participate in bidding process until he clears all the dues to the lenders in a time bound manner. At present, the National Company Law Tribunal or NCLT has taken up several insolvency cases and hearing them at its benches across the country. So far, the Reserve Bank of India or RBI has proposed banks should start insolvency proceeding against as many as 50 accounts. Besides, a panel set up to monitor the functioning of the amended IBC framework will study its performance for one year and then submit its report to the government. The government may bring in at least two more changes in the IBC law in the ongoing winter session of Parliament. The first amendment relates to small and medium enterprise whose promoter may be allowed to take part in the bidding process after the hearing at the NCLT is done. The second likely change that the government may bring in pertains to corporate guarantors of insolvent entities. They may be allowed to participate in corporate resolution process if they have honoured the guarantee or if it has not been invoked, according to the ET report. It has come to the fore that many small enterprises are unable to find buyers for them after they have gone bankrupt that eventually leads to liquidation of such entities. Even lenders find themselves amidst unfavourable situation when it comes to recovering loans extended to small companies.