Home-buyers will get “due representation in the Committee of Creditors and make them an integral part of the decision-making process”, said the release.
With President Ram Nath Kovind’s assent to an ordinance on Wednesday, home-buyers will now be recognised as financial creditors under the insolvency law and promoters of micro, small and medium enterprises (MSMEs) will be allowed to bid for their stressed firms if they are not wilful defaulters.
The Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018, also allows for the withdrawal of a case after admission by the adjudicating authority, but not without the approval of 90% of creditors, the government said in a statement. To encourage resolution rather than liquidation, the voting threshold for approving a resolution plan has been trimmed to 66% from 75% earlier. For routine decisions, the voting threshold is fixed at 51%
Pure-play financial entities like banks would be exempted from the disqualification provision on account of holding stake in or acquiring stressed firms earlier. “A resolution applicant holding an NPA (non-performing asset) by virtue of acquiring it in the past under the IBC, 2016, has been provided with a three-year cooling-off period, from the date of such acquisition. In other words, such NPA shall not disqualify the resolution application during…the three-year grace period,” the government said in a statement.
The ordinance provides for a mechanism to allow participation of security holders, deposit holders and all other classes of financial creditors beyond a certain number to attend the committee of creditors meetings through authorised representations. “Taking into account the wide range of disqualifications contained in Section 29(A) of the Code, the ordinance provides that the resolution applicant shall submit an affidavit certifying its eligibility to bid. This places the primary onus on the resolution applicant to certify its eligibility,” the release said.
Home-buyers will get “due representation in the Committee of Creditors and make them an integral part of the decision-making process”, said the release. They can even initiate insolvency resolution process against errant builders, just like other financial creditors, by invoking Section 7 of the IBC. “It (the ordinance) also empowers the central government to allow further exemptions or modifications with respect to MSME sector, if required, in public interest,” it noted. The ordinance was cleared by the Cabinet on May 23.
As for withdrawals, these will only be permissible before publication of notice inviting expressions of interest. According to the release, the regulations would bring in further clarity by laying down mandatory timelines, processes and procedures for resolution process. “Some of the specific issues that would be addressed include non-entertainment of late bids, no negotiation with the late bidders and a well laid down procedure for maximising value of assets,” the release said.
The ordinance, according to the statement, stipulates that the successful resolution applicant would have at least a one-year grace period to fulfil various statutory obligations required under different laws. Other changes in the code include non-applicability of moratorium period to enforcement of guarantee and liberalising conditions of interim finance for corporate debtor during resolution period.
According to the statement, the requirement of special resolution for corporate debtors to trigger insolvency resolution on their own has been introduced.