IBC Amendment Bill Overview
The Insolvency and Bankruptcy Code (IBC) Amendment Bill uses the phrase "it is hereby clarified" 17 times to emphasize its clarifications. Key clarifications include
Corporate Insolvency Resolution
- Trigger for Resolution: Restores the original trigger, i.e., admission if a default exists and rejection if it does not, aligning with past interpretations. This overturns the Vidarbha Industries (2022) decision.
- Liquidation Waterfall: Reinstates the original order by overturning Rainbow Papers (2022), clarifying that government dues rank lower than secured creditors. A security interest must arise from a contractual agreement.
Process Timelines and Authority Roles
- Strict Timelines: Imposes deadlines on the Adjudicating Authority (AA) for various tasks to ensure swift process closure. AA must decide on applications and resolution plans within specified days.
- Challenges: Without increased capacity, meeting these timelines is difficult, risking continued delays.
Clarifications and Implications
- Clean Slate Principle: Resolution plans bind all stakeholders and extinguish certain claims, reducing litigation.
- Potential Endless Legislative Cycle: While aiming to solidify IBC's integrity, the amendments may lead to frequent legislative revisions.
Additional Provisions
- Regulatory and Structural Changes: The Bill elevates several regulation provisions to the Code, including timelines for liquidation and the oversight of creditors’ committees.
- Creditor-Initiated Process: Introduces a new process without requiring AA approval, though it may lead to complications and litigation.
- Cross-border and Group Insolvency: Leaves much to delegated rules, risking excessive delegation.
Potential Impact and Shortcomings
- Court of Creditors Scrutiny: Empowers the insolvency regulator to oversee creditor committees.
- Disparities Remain: Financial creditors continue to realize a higher percentage of claims compared to operational creditors.
- Need for Comprehensive Reform: While the bill is detailed and well-drafted, it may only provide incremental improvements rather than a transformative change.