AMENDMENTS IN THE INSOLVENCY AND BANKRUPTCY LAW
By EDITORIAL TEAM - INSOL India Posted On : April 21, 2020
Comparison of the provisions of the Insolvency & Bankruptcy Amendment Act, 2020 with the Insolvency & Bankruptcy Code, 2016
1. Insolvency Commencement Date:
The Insolvency & Bankruptcy Amendment Act, 2020 omits the proviso to Section 5(12) of the Insolvency & Bankruptcy Code, 2016. Therefore, Section 5(12) currently clarifies that the insolvency commencement date is the date of admission of an application for initiating the corporate insolvency resolution process (CIRP).
Prior to this amendment, the insolvency commencement date (and consequently, the commencement of CIRP) was, effectively, the date of appointment of the interim Resolution Professional (IRP) by the National Company Law Tribunal (NCLT / the Adjudicating Authority).
However, due to the omission of the proviso, insolvency commencement date under Section 5(12) means the date of admission of an application for initiating CIRP by the NCLT under Sections 7, 9 or Section 10 of the Code.
2. Threshold for initiating resolution process:
The Insolvency and Bankruptcy Amendment Act, 2020 specifies a minimum threshold requirement for the filing of an application for initiation of the process of corporate insolvency resolution (CIRP) by certain classes of financial creditors. The Amendment Act requires the filing of an application to initiate CIRP by certain classes of financial creditors (such as real estate allottees and security or deposit holders represented by a trustee or agent) to be jointly filed by at least 100 such creditors in such class or 10% of their total number, whichever is less. In case of real estate allottees, such minimum threshold is to be met by allottees under the same real estate project.
Section 7(1) of the Insolvency & Bankruptcy Code, 2016 states that CIRP can be initiated by a financial creditor either by himself or jointly with other financial creditors by filing an application to initiate CIRP against a corporate debtor before the NCLT when a default has occurred.
3. Corporate debtors are entitled to make an application:
The Insolvency & Bankruptcy Amendment Act, 2020 inserts an explanation in Section 11 allowing corporate debtors to file an application to initiate Corporate Insolvency Resolution Process (CIRP) against another corporate debtor. Prior to the amendment, CIRP could be initiated only by way of admission of an application filed by a financial creditor, operational creditor or the corporate debtor itself upon the occurrence of a default. Additionally, Section 11 restricted / prevented corporate debtors undergoing CIRP or having completed CIRP within 12 months of the date of filing / making of an application or in respect of whom a liquidation order has been made, etc. from filing / making an application to initiate CIRP. The Amendment Act lifts such restrictions and clarifies that a corporate debtor shall not be prevented from filing / making an application for initiation of CIRP against other corporate debtors.
4. Liabilities for prior offences:
The Insolvency and Bankruptcy Amendment Act, 2020, via the insertion of Section 32A, provides for the cessation of liability of a corporate debtor for offences committed prior to the commencement of the corporate insolvency resolution process (CIRP) under the Insolvency & Bankruptcy Code, 2016. The Amendment Act states that a corporate debtor will not be held liable for any offences committed prior to the commencement of CIRP and that the corporate debtor shall not face prosecution for such offence from the date of approval of a resolution plan for the corporate debtor by the NCLT, provided that the approved resolution plan results in the change in management or control of the corporate debtor to a third party who was not the erstwhile promoter and was unconnected to the corporate debtor (and the relevant offence) prior to the approval of such resolution plan.
The Amendment Act also provides immunity to the corporate debtor from attachment, seizure, retention or confiscation of their property in relation to such offences upon the approval of a resolution plan for such corporate debtor.
5. Licenses and permits are not to be terminated due to Insolvency:
The Amendment Act states that a license, permit, quota, registration, concession, clearance, or a similar grant or right from the Central Government, State Government or other governmental / regulatory authorities shall not be terminated or suspended by such authority during the moratorium period solely on account of the initiation of CIRP against the corporate debtor. However, such grants or rights may be terminated and/or suspended if the corporate debtor defaults in the payment of current dues arising for the use or continuation of such licenses or permits during the moratorium.
1. Insolvency Commencement Date:
The Insolvency & Bankruptcy Amendment Act, 2020 omits the proviso to Section 5(12) of the Insolvency & Bankruptcy Code, 2016. Therefore, Section 5(12) currently clarifies that the insolvency commencement date is the date of admission of an application for initiating the corporate insolvency resolution process (CIRP).
Prior to this amendment, the insolvency commencement date (and consequently, the commencement of CIRP) was, effectively, the date of appointment of the interim Resolution Professional (IRP) by the National Company Law Tribunal (NCLT / the Adjudicating Authority).
However, due to the omission of the proviso, insolvency commencement date under Section 5(12) means the date of admission of an application for initiating CIRP by the NCLT under Sections 7, 9 or Section 10 of the Code.
2. Threshold for initiating resolution process:
The Insolvency and Bankruptcy Amendment Act, 2020 specifies a minimum threshold requirement for the filing of an application for initiation of the process of corporate insolvency resolution (CIRP) by certain classes of financial creditors. The Amendment Act requires the filing of an application to initiate CIRP by certain classes of financial creditors (such as real estate allottees and security or deposit holders represented by a trustee or agent) to be jointly filed by at least 100 such creditors in such class or 10% of their total number, whichever is less. In case of real estate allottees, such minimum threshold is to be met by allottees under the same real estate project.
Section 7(1) of the Insolvency & Bankruptcy Code, 2016 states that CIRP can be initiated by a financial creditor either by himself or jointly with other financial creditors by filing an application to initiate CIRP against a corporate debtor before the NCLT when a default has occurred.
3. Corporate debtors are entitled to make an application:
The Insolvency & Bankruptcy Amendment Act, 2020 inserts an explanation in Section 11 allowing corporate debtors to file an application to initiate Corporate Insolvency Resolution Process (CIRP) against another corporate debtor. Prior to the amendment, CIRP could be initiated only by way of admission of an application filed by a financial creditor, operational creditor or the corporate debtor itself upon the occurrence of a default. Additionally, Section 11 restricted / prevented corporate debtors undergoing CIRP or having completed CIRP within 12 months of the date of filing / making of an application or in respect of whom a liquidation order has been made, etc. from filing / making an application to initiate CIRP. The Amendment Act lifts such restrictions and clarifies that a corporate debtor shall not be prevented from filing / making an application for initiation of CIRP against other corporate debtors.
4. Liabilities for prior offences:
The Insolvency and Bankruptcy Amendment Act, 2020, via the insertion of Section 32A, provides for the cessation of liability of a corporate debtor for offences committed prior to the commencement of the corporate insolvency resolution process (CIRP) under the Insolvency & Bankruptcy Code, 2016. The Amendment Act states that a corporate debtor will not be held liable for any offences committed prior to the commencement of CIRP and that the corporate debtor shall not face prosecution for such offence from the date of approval of a resolution plan for the corporate debtor by the NCLT, provided that the approved resolution plan results in the change in management or control of the corporate debtor to a third party who was not the erstwhile promoter and was unconnected to the corporate debtor (and the relevant offence) prior to the approval of such resolution plan.
The Amendment Act also provides immunity to the corporate debtor from attachment, seizure, retention or confiscation of their property in relation to such offences upon the approval of a resolution plan for such corporate debtor.
5. Licenses and permits are not to be terminated due to Insolvency:
The Amendment Act states that a license, permit, quota, registration, concession, clearance, or a similar grant or right from the Central Government, State Government or other governmental / regulatory authorities shall not be terminated or suspended by such authority during the moratorium period solely on account of the initiation of CIRP against the corporate debtor. However, such grants or rights may be terminated and/or suspended if the corporate debtor defaults in the payment of current dues arising for the use or continuation of such licenses or permits during the moratorium.