IBC ( Second Amendment) Bill, 2018 introduced in Lok Sabha


The Insolvency and Bankruptcy Code, 2016 provides a time-bound process to resolve insolvency among companies and individuals. Insolvency is a situation where an individual or company is unable to repay their outstanding debt. In November 2017, the Insolvency Law Committee was set up to review the Code, identify issues in its implementation, and suggest changes. The Committee submitted its report in March 2018. The Committee made several recommendations such as exempting micro, small and medium enterprises from certain provisions of the code, treating allottees under a real estate project as financial creditors, reducing voting thresholds of the committee of creditors, among others. Subsequently, the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018, was promulgated on June 6, 2018.

Key Features

  • Status of allottees: The Code defines a financial creditor as anyone who has extended any kind of loan or financial credit to the debtor. The Ordinance clarifies that an allottee under a real estate project (a buyer of an under-construction residential or commercial property) will be considered as a financial creditor, as the amount raised from allottees for financing a real estate project has the commercial effect of a borrowing.
  • Representative of financial creditors: During the insolvency resolution process, a committee consisting of financial creditors will be constituted for taking decisions (by voting) on the resolution process. The Ordinance specifies that, in certain cases, such as when the debt is owed to a class of creditors, the financial creditors will be represented on the committee of creditors by an authorised representative. These representatives will vote on behalf of the financial creditors as per the prior instructions received from them.
  • Voting threshold of committee of creditors: The voting threshold for decisions of the committee of creditors has been lowered from 75% to 51%. For certain key decisions of the committee, the threshold has been reduced from 75% to 66%. These include: (i) appointment of the resolution professional, (ii) approval of the resolution plan, and (iii) increasing the time limit for the insolvency resolution process.
  • Ineligibility to be a resolution applicant: The Ordinance amends the criteria which prohibits certain persons from submitting a resolution plan. For example, the Code prohibits a person from being a resolution applicant if his account has been identified as a non-performing asset (NPA) for more than a year. The Ordinance provides that this criterion will not apply if such applicant is a financial entity, and is not a related party to the debtor (with certain exceptions). Secondly, the Code also bars a guarantor of a defaulter from being an applicant. The Ordinance specifies that such a bar will apply if such guarantee has been invoked by the creditor and remains unpaid.
  • Applicability of the Code to Micro, Small, and Medium Enterprises (MSMEs): The Ordinance states that the ineligibility criteria for resolution applicants regarding NPAs and guarantors will not be applicable to persons applying for resolution of MSMEs. The central government may, in public interest, modify or remove other provisions of the Code while applying them to MSMEs.
  • Withdrawal of submitted applications: A resolution applicant may withdraw a resolution application, from the National Company Law Tribunal (NCLT), after such process has been initiated. Such withdrawal will have to be approved by a 90% vote of the committee of creditors.

Download  Insolvency and Bankruptcy Code (Second Amendment) Bill, 2018

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eMinds Legal is a Corporate Law Firm based in Gurgaon, India specializing in Corporate Legal, Corporate Secretarial and Compliance. The Firm comprises of a team of Corporate Lawyers and Company Secretaries with in-depth subject matter knowledge and participative industry experience of over 15 years.

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