IBC tweak: Ring-fence only if bid winner is a third party

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Published: December 13, 2019 5:49:45 AM

The move to insulate third-party winning bidders from the sins of earlier management will avoid a repeat of cases like Bhushan Power & Steel (BPSL).

IBC, Insolvency and Bankruptcy Code, nclatRecently, the Enforcement Directorate had seized a portion of BPSL’s assets in a money laundering case against its former promoters.

The latest amendments to the Insolvency and Bankruptcy Code (IBC) may have proposed to “ring-fence” successful bidders of stressed assets from criminal proceedings against offences committed by previous management/promoters, but the relief will be granted only when the companies change hands, an official source told FE.

“If the same set of people continue to run the stressed firm even after resolution, they will be held accountable for their past offences, if any. The relief is granted only if the winning bidder is a third party,” said the source. This is important for MSMEs, where promoters (if they are not wilful defaulters) are allowed to bid for their stressed assets.

The move to insulate third-party winning bidders from the sins of earlier management will avoid a repeat of cases like Bhushan Power & Steel (BPSL).

The Insolvency and Bankruptcy Code (Second Amendment) Bill, 2019, which was introduced in Lok Sabha on Thursday by finance and corporate affairs minister Nirmala Sitharaman, also stipulates that the number of home buyers required to file an insolvency case against a realty developer must be 100 or they must account for 10% of the total number of such creditors, whichever is lower.

Currently even one home buyer — just like any financial or operational creditor — can file an insolvency case against their realty developer if the default amount involved is Rs 1 lakh or more. The latest plan is aimed at preventing a few potentially unscrupulous elements within the home-buyer community from abusing the spirit of the IBC by unsettling real estate companies at the behest of rival firms. However, home buyers will continue to be treated as financial creditors.

Recently, the Enforcement Directorate had seized a portion of BPSL’s assets in a money laundering case against its former promoters. Although the NCLAT subsequently asked the ED to release the attached properties but it had also put the `19,700-crore payout by the JSW Steel for the debt-ridden company on hold until further orders.

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