Social Media

Insolvency & Bankruptcy Code Bars Defaulting Promoters

Insolvency and Bankruptcy Code, 2016 (IBC) amended on 23 November 2017 by the Government of India promulgating ordinance to bar defaulting promoters from bidding for their own assets is one of the biggest disruptive initiatives towards a more transparent and cleaner way of doing business and pushing Indian businesses to adapt new ways and change old practices. The ordinance:

  • Aims at putting in place safeguards to prevent unscrupulous, undesirable persons from misusing or vitiating the provisions of the IBC.
  • 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.
  • Place restrictions for such persons to participate in the resolution or liquidation process,
  • Provides such check by specifying that the Committee of Creditors ensure the viability and feasibility of the resolution plan before approving it.
  • Provides for punishment for contravention of the provisions, to ensure that the provisions prescribed are enforced effectively, that is, fine which shall not be less than one lakh rupees but which may extend to two crore rupees.
  • Insolvency and Bankruptcy Board of India has also been given additional powers.

In the amended IBC, a new Section 29A makes certain persons ineligible to be a Resolution Applicant. Those being made ineligible inter alia include:

  • Willful Defaulters,
  • Those who have their accounts classified as Non-Performing Assets (NPAs) for one year or more and are unable to settle their overdue amounts include interest thereon and charges relating to the account before submission of the Resolution Plan,
  • Those who have executed an enforceable guarantee in favour of a creditor, in respect of a Corporate Debtor undergoing a Corporate Insolvency Resolution Process or Liquidation Process under the Code
  • And connected persons to the above, such as those who are Promoters or in management of control of the Resolution Applicant, or will be Promoters or in management of control of Corporate Debtor during the implementation of the Resolution Plan, the holding company, subsidiary company, associate company or related party of the above referred persons.
  • The Sale of Property to a person who is ineligible to be a Resolution Applicant under Section 29A has been barred.

Insolvency and Bankruptcy Board of India had also recently amended the Regulations to ensure that information on the antecedent of the applicant submitting the Resolution Plan along with information on the preferential, undervalued or fraudulent transactions are placed before the Committee of Creditors in order for it to take an informed decision on the matter.

This reform in the banking sector of weeding-out of unscrupulous elements from the resolution process, along with other steps towards improving compliances, actions against defaulting companies to prevent misuse of corporate structures for diversion of funds, is part of on-going reforms initiated by the Government that would help strengthen the formal economy and encourage honest businesses and budding entrepreneurs to work in a trustworthy, predictable regulatory environment.UPDATED: NOVEMBER 24, 2017 04:56 IST

Leave a Reply

Your email address will not be published. Required fields are marked *

Related Articles

Comodo SSL