Insolvency Code not in conflict with Companies Act, says Centre, quashes confusion

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New Delhi | Published: October 27, 2017 6:30:10 AM

The Insolvency and Bankruptcy Code (IBC), 2016, isn’t in conflict with the Companies Act, 2013, and Wednesday’s clarification that a resolution plan approved by the committee of creditors and the adjudicating authority doesn’t require shareholders’ nod for implementation was made to clear any confusion among stakeholders regarding the applicability of the existing provisions of both the laws, a senior corporate affairs ministry official said.

Insolvency and Bankruptcy Code 2016, IBBI, MS Sahoo, Companies Act, Mamta Binani, Institute of Company Secretaries of IndiaThe clarification came as some stakeholders drew attention to Section 30(2)(e) of the IBC, which directs resolution professionals to ensure any such insolvency resolution plan “does not contravene any of the provisions of the law for the time being in force”. (Reuters)

The Insolvency and Bankruptcy Code (IBC), 2016, isn’t in conflict with the Companies Act, 2013, and Wednesday’s clarification that a resolution plan approved by the committee of creditors and the adjudicating authority doesn’t require shareholders’ nod for implementation was made to clear any confusion among stakeholders regarding the applicability of the existing provisions of both the laws, a senior corporate affairs ministry official said. The clarification came as some stakeholders drew attention to Section 30(2)(e) of the IBC, which directs resolution professionals to ensure any such insolvency resolution plan “does not contravene any of the provisions of the law for the time being in force”. Since the Companies Act provides for shareholders’ approval in cases of transfers of assets or shares of a company, some stakeholders sought to know if, in the light of Section 30 (2)(e) of the IBC, such things would be applicable to the insolvency resolution plan as well.

“The regulation that shareholders’ approval to a resolution plan was not required was already made clear by the Insolvency and Bankruptcy Board of India (IBBI). Still, the clarification was made to make it even more explicit,” he said. “IBC is applicable to a stressed company that is under the insolvency resolution process, and not to all companies. So, in matters of insolvency resolution, the IBC can even override certain Companies Act regulations,” he added. According to IBBI chairman MS Sahoo, there is also a moratorium on various actions by other agencies against the corporate debtor during the insolvency resolution process period. Mamta Binani, former president of the Institute of Company Secretaries of India and the country’s first insolvency professional to be registered with the IBBI, said: “It’s a fair move by the government. Some may say it curtails the right of the shareholders, but the company that is under resolution process is, in fact, so stressed that it isn’t giving any dividend to the shareholders anyway.” Also, the IBC provides for fast and time-bound resolution of insolvency, so attempts should be made to stick to the spirit of the IBC.

Binani said Section 39 (6) of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations 2016 already makes the entire matter adequately clear. The section says: “A provision in a resolution plan which would otherwise require the consent of the members or partners of the corporate debtor, as the case may be, under the terms of the constitutional documents of the corporate debtor, shareholders’ agreement, joint venture agreement or other document of a similar nature, shall take effect notwithstanding that such consent has not been obtained.” The IBC came into existence as the government wanted to have a law to facilitate corporate insolvency in a time-bound and professional manner. It provides for the turnaround of stressed assets or, in case of liquidation, their quick monetisation.

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