SUNNY THAKRAL
Chartered Accountant
The Cockamamie

Proposed changes in IBC

Amendment of the applicability of the provisions of the Code – Section 2 There is not much change in the above. The only text that has been amended is now to specifically distinguish “personal guarantors” from any other individual, which are governed by the provisions of this Code. This could have been done keeping in mind the applicability of Section 60 which specifically takes away the jurisdiction of personal guarantors of corporate debtors from DRT to NCLT. Probably, this change may not lead to anything major, unless avoiding any unnecessary litigation which could happen in future when the provisions of individual bankruptcy will be brought into operation.Another noticeable amendment that this brings into force is now to specifically include sole proprietorships into its ambit, which earlier was missing. However, not going into details of this,

Section 78 itself still does not talk about coverage of sole proprietorships. We do not discuss this further as still this has not been notified and has no relation with the matter under discussion in this paper. Amendment of the definition of “resolution applicant” – Section 5 Before the amendment, a resolution applicant was supposed to be a universal person who could put forward his intent of resolving the ailing company/ asset under default, subsequent to a public announcement by way of an Information Memorandum, made by the Resolution Professional in this behalf. Any person could claim by way of a resolution plan to resolve/ revive the ailing company/ asset. However, the change, which otherwise seems to be of minor importance, has added the words “pursuant to the invitation made” in this behalf by the Resolution Professional. The message put forward by this amendment is that now it would be considered to be a restricted entry party, whereby, any Tom Dick or Harry, cannot stake claim to revive the ailing company/ asset.The original intent of the legislature seemed to be quite logical that after the event of default by the

corporate debtor, the company/ asset is up for grab. This leads to a universal bid program which helps in actual price discovery of the company/ asset.

However, post this amendment, this would now be restricted to an invitation to be made by Resolution Professional, only then, one can put forward his claim/ interest of reviving/ takeover of the ailing company/ asset. The actual impact of this amendment can be perceived only that now it would be the call of the

Committee of Creditors only, that who actually can offer his/ her interest in putting forward a resolution plan. This would have been a good idea, had the whole process of Corporate Insolvency Resolution Process (CIRP) been a close room call of the Committee of Creditors, keeping at par with the Joint Lenders’ Forum Meeting (JLF Meeting) under the guidelines of RBI. Now, this CIRP being a statutory process, being overlooked by judiciary (NCLT), making this a restricted affair is actually notfair. In a way, the executive is trying to empower the creditors, to make the rules of the game now in their favour, which sound good only when they themselves takeover the company/ asset. Amendment of process of inviting resolution applicants – Section 25(2)(h) The original draft of the legislature under the duties of the Resolution Professional u/s 25 says that it is the duty of the Resolution Professional to invite prospective lenders/ investors/ any other persons to forward their resolution plans for revival of the ailing company/ asset. The amendment now takes away the character of universality of resolution applicants who nowhave to go through detailed testing and verification process to put forward their intents for any resolution plan. It cannot professed whether the creditors would be actually glad with this amendment or not, however, what this leads to is putting further constraints on the whole process which is already short on time, resources, viability, feasibility or any other characteristics which are required to sail smoothly. A normal business transaction in our day to day life which may include buying any asset, business or company, would take sufficient time to garner the above said characteristics. However, the legislature in its original draft was already so very confident that every type of corporate debtor be it a small scale unit (not legally) or a large multinational corporation, would be able to sail through the whole process within a period of 180/ 270 days. This amendment adds another feather to the cap of confidence of the system that putting additional test parameters would also be covered within the same amount of time. Keeping aside the trial, testing and error time it would take to litmus test the eligibility of resolution applicant. Insertion of the eligibility requirements of the resolution applicant – Section 29A This is a bumper draw in the whole amendment. No thoughts or awards for the fact that who would have put forward this idea of putting a whole new section in this behalf. Not putting any scorn on the fact that the intent of this section is no doubt wonderful, but the way this has been brought forward may lead to aggravation of further nuisance.

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