Government seeks comments on proposed changes to insolvency law

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The government on Thursday invited comments on various proposed amendments to the insolvency law, including provisions relating to the time limit for approval of resolution plans as well as avoidable and illicit transactions.

The changes were proposed by the Insolvency Law Committee (ILC). Comments were requested until January 13, 2022.

According to a public notice, changes have been proposed to allow for a speedy admission process, to streamline the avoidable and illicit transaction provisions, and the standards for timeframes for the approval of resolution plans.

In addition, amendments were suggested in the context of the closure of the voluntary liquidation process and the IBC Fund.

The Insolvency and Bankruptcy Code (IBC) entered into force in 2016 and has already undergone various changes.

The proposed changes relate to the framework for resolving and liquidating corporate insolvency under the Code, which is administered by the Ministry of Corporate Affairs.

To speed up the process of admitting insolvency claims, it has been suggested to ask financial creditors to rely on Information Utility (UI) records to establish default.

Thereafter, the adjudicating authority (AA) would only be required to consider the records authenticated by the IU as proof of default for Article 7 claims filed by these financial creditors, as prescribed.

“It will also deter AAs from taking the time to determine ancillary matters such as the amount of default and allow them to quickly admit Section 7 CIRP requests based on UI authenticated records proving the existence of a defect, “the ministry said in the public notice. .

Under the Code, the avoidable transactions provisions provide for certain retrospective periods. Currently, the threshold for such retrospective periods is the date of admission of a CIRP (Corporate Insolvency Resolution Process) request.

The proposed modification consists in changing the threshold of the retrospective period between the start date of the CIRP and the date of filing of the request to open the CIRP.

The period between the filing date and the CIRP start date may additionally be included in the suspect period for such transactions, in accordance with the proposed changes.

Another amendment concerns the approval of a resolution plan which has already been approved by the Creditors Committee (CoC).

“It is proposed that the Code provide for a fixed deadline for the approval or rejection of a resolution plan by the AA … where the resolution plan is not approved or rejected within this period, the AA write down the reasons for the same, “the public notice said.

Regarding the voluntary liquidation process, it was proposed that the closing of the process could be carried out by the legal person, subject to the same requirements as for the initiation of the process and that the AA might not be required.

“If such approvals are granted, the liquidator may be required to make a public announcement of the conclusion of the process and to notify the relevant authorities such as the IBBI and the Registrar,” the public notice reads.

Another proposal for the establishment of a detailed framework for the contribution and use of the IBC Fund.

(Only the title and image of this report may have been reworked by Business Standard staff; the rest of the content is automatically generated from a syndicated feed.)

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