No changes in Insolvency and Bankruptcy Code till September 2018.Says Central Government

No changes in Insolvency and Bankruptcy Code till September 2018.

Insolvency law committee’s recommendations do not address all ambiguities in Code: Says Central Government

THE confusion and ambiguity in the Insolvency and Bankruptcy Code (IBC) will continue for some more time, as the Central government is planning to wait for two more quarters before proposing any changes in the code, as it seeks more clarity on the issue.

Recommendations of Insolvency Law Committee

The government had formed a 14-member Insolvency Law Committee to give suggestions on many ambiguous issues, including relaxing norms for MSMEs, ambiguity over home buyers, and reforming the process of recovery.

The committee had made various suggestions to the Ministry of Corporate Affairs. However, the ministry now wants more time before making any changes in the code.

“Many recommendations have come and we are already evaluating them. However, the recommendations alone will not be able to handle all ambiguity. So we will take some more time before going for making a change. We will wait at least two more quarters, till September 2018,” a senior official in the Ministry of Corporate Affairs told The New Indian Express.

Another reason the official gave is that the committee’s recommendations have not been able to address all the ambiguities.

Whether Home Buyers have to be included as Financial Creditors?

For instance, the committee has recommended that homebuyers be treated as financial creditors and argued that non-inclusion of homebuyers in the definition of ‘financial’ or ‘operational’ creditors deprives them of the right to initiate the insolvency process. However, real estate developers argue that treating homebuyers as financial creditors would be in conflict with RERA regulations.

Whether 29A of IBC Code needs a Relook?

Another point of ambiguity is Section 29A of the IBC code. The section says that any person acting jointly or in concert with an ineligible person or related to the ineligible person is barred from submitting a resolution plan. The committee had pointed out that this clause would shrink the pool of resolution applicants.

The ministry, on the other hand, feels that relaxing the clause too much will defeat the purpose of the law as many frauds are being conducted in collusion with banks. It feels that relaxing the norms for creditors and bidders too much would defeat the very purpose of creating the code.

MINISTRY’S VIEW

➊ 14-member panel’s recommendations not conclusive, says ministry

➋ It will seek more opinions from the industry and policy experts

➌ Wants to wait till September end before implementing recommendations

➍ Points of ambiguity: Section 29, home-buyers and relaxed norms for creditors

➎ Government feels too relaxed norms for creditors will dilute the purpose of IBC

Courtesy: New Indian Express