Insolvency amendment bill passed in Lok Sabha; here’s what it means for loan defaulters

By: | Updated: December 29, 2017 3:49 PM

The Insolvency and Bankruptcy Code (Amendment) Ordinance, 2017 Bill, which primarily proposes to bar wilful defaulters from bidding for troubled assets during the insolvency process, has been passed in the Lok Sabha.

The Insolvency and Bankruptcy Code (Amendment) Ordinance, 2017 Bill, which primarily proposes to bar wilful defaulters from bidding for troubled assets during the insolvency process, has been passed in the Lok Sabha.

The Insolvency and Bankruptcy Code (Amendment) Ordinance, 2017 Bill, which primarily proposes to bar wilful defaulters from bidding for troubled assets during the insolvency process, has been passed in the Lok Sabha. The Ordinance amended the definition of a resolution applicant and their eligibility and ineligibility.

The Ordinance laid down 10 ineligibility criteria for a resolution applicant, few of them being, a wilful defaulter identified by the RBI, a person who has been convicted with two years more years of imprisonment, an undischarged insolvent and person prohibited from trading in securities. The 2017 Ordinance amends the Insolvency and Bankruptcy Code, 2016.

However, defaulting promoters who had already submitted resolution plans for insolvent companies before an ordinance in November made them ineligible to do so without clearing dues first will get up to a month to come clean to be eligible to bid for the stressed firms.

Last month, President Ram Nath Kovind had given nod to the Ordinance after it was cleared by the Union Cabinet.  The Section 235A, which has been incorporated in the code, provides for punishment for contravention of the provisions where no specific penalty or punishment is provided. The punishment is fine will be between Rs 1 lakh and 2 crores.

The government said that the Ordinance was introduced with an aim to keep out wilful defaulters and people associated with non-performing assets or those who are habitually non-compliant, who pose a risk to the successful resolution of the insolvency of a company.

However, some stakeholders expressed concerns and called it a messy fix for the monstrous bad loans situation. There are three concerns regarding the amendment:  If promoters are barred from bidding, the non-promoters will bid conservatively and pressure banks for more discounts; what about a chance to small companies or units to revive their business, and what about companies genuinely hit by global-turndown and demand deficit?

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