Year-long IBC suspension to be lifted ‘after March 24’, hints MCA

by | posted in: Accounting Standards, Audit, Due Diligence, Company Incorporations, e-filing of MCA Returns, Corporate & Business Advisory Services, Corporate Updates, Economy, Business Updates, Corporate Affairs | 0

The Ministry for Corporate Affairs Ministry has hinted that the suspension of the Insolvency and Bankruptcy Code (IBC) is likely to be revoked after March 24.

he Ministry for Corporate Affairs Ministry has hinted that the suspension of the Insolvency and Bankruptcy Code (IBC) is likely to be revoked after March 24.

This has been conveyed in a written submission by the Ministry to the Standing Committee on Finance headed by Jayant Sinha. This submission came along with the note on allocation and utilisation of funds for the Insolvency and Bankruptcy Board of India (IBBI), which is the insolvency regulator.

“It is expected that the suspension of the Insolvency and Bankruptcy Code will likely be revoked after March 24 and activities of IBBI will be increased manifold in the next financial year,” the MCA submission said.

Given that the economy is now in recovery mode, it is widely expected that the Centre will revoke the suspension after March 24. Also, any extension of the suspension this date would require Parliament approval, legal experts said.

6-month suspension

A six-month suspension was first introduced in June 5 for debt defaults arising post March 25, 2020, when the Covid-induced lockdown was announced. The suspension was to end on September 25, but was extended up to December 25. In mid-December, the suspension was further extended by three months, up to March 25.

In effect, the government had ensured that any corporate debt default during Covid, between March 25, 2020 and March 25, 2021, will remain outside the IBC purview. However, for defaults before March 25, 2020, there will be no protection, said experts.

While the law protects the corporate debtor from insolvency proceedings for the one-year period till March 25, it does not disallow such action against the personal guarantors of a corporate debtor.

‘Go digital’

In a separate development, the Standing Committee on Finance has, in its latest report tabled in the Lok Sabha on Tuesday, directed the MCA to move towards full digitisation of its functions, particularly of its statutory bodies. It sees the quasi judicial bodies facing a deluge of cases post withdrawal of the moratorium and underscored stressed the need to enhance their digital and infrastructural capacities to handle the increase in caseload.

Source: Business Line

The Micro Small and Medium Enterprises (MSMEs) hit by Covid pandemic may have something to cheer at last.

by | posted in: Accounting Standards, Audit, Due Diligence, Corporate & Business Advisory Services, Corporate Updates, Economy, Business Updates, Corporate Affairs | 0

Insolvency and Bankruptcy Board of India (IBBI) has formulated a Special Resolution Process (SRP) for MSMEs who find their financial position unmanageable due to Covid crisis.


While presenting the ‘Atma Nirbhar Bharat’ package Finance Minister had announced to come out with a Special insolvency resolution framework for MSMEs under section 240A of the Insolvency and Bankruptcy Code.

According to sources close to the development, the scheme would be available to corporate MSMEs, that is, units incorporated as Companies or LLP.

The salient features of the scheme are proposed to be:

  —   If an MSME finds it unable to meet its financial obligations, the insolvency resolution process could be initiated on the occurrence of default of at least Rs.1 lakh

  —   It can be triggered by the MSME promoter/ owner only (not by the Financial or other creditors)

  —   During the process of resolution, the MSME owner remains in control and keeps running the unit but all legal proceedings to take control of assets by creditors are stopped.

  —   It provides first right of offer to promoters of the MSME to submit resolution plans

  —   It proposes a simplified claim verification process and preparation of information memorandum

  —   It expands the scope of interim finance to facilitate rescue financing of the CD during COVID-19 with the approval of 3/4th financial creditors in value.

Federation of Indian Micro and Small & Medium Enterprises (FISME) which facilitated a consultation round of MSME associations with IBBI shared that most participants found the scheme potentially useful.

According to Lucknow based V K Agarwal Managing Director of Shashi Cables Ltd and former FISME President, the scheme seemed to be modelled on insolvency provisions under US chapter-11, was very promising indeed but some way needed to be found to make financial creditors to come on board and cooperate.

The scheme envisages appointment of an Insolvency Professional (IP) as Resolution Professional to conduct the process, with the consent of the unrelated financial creditors having at least 25% of the outstanding financial claims.

The scheme is under final stages of approval and is expected to be announced soon.

IBBI proposes to limit cases with insolvency professionals

by | posted in: Company Incorporations, e-filing of MCA Returns, Corporate & Business Advisory Services, Corporate Updates, Economy, Business Updates, Corporate Affairs | 0
The IBBI’s discussion paper said that the processes under the Insolvency and Bankruptcy Code (IBC) require a unique combination of skill sets in terms of subject matter knowledge and management skills for an IP and at different stages of transactions, different sets of skills are called for.

In what may bring about major reform and efficiency in the insolvency regime in India, the Insolvency and Bankruptcy Board of India (IBBI) has proposed to limit the number of cases an insolvency professional can handle to five as it noted that few insolvency professionals (IP) are handling too many cases

In a recent discussion paper, the board noted the “skewed” work allocation and has come up with a matrix for allocation of cases.

Citing observations by courts and  tribunals, the paper said: “Keeping in mind the provisions of the Companies Act, 2013, the skewed work allocation amongst the IPs and the observations of the Supreme Court or Adjudicating Authority, and given the expansive and intense responsibilities of an IP in corporate processes, it is proposed to issue necessary guidelines to IPs advising them to limit the maximum number of assignments handled by them, to five, at a given point of time.”

As per the proposed matrix an insolvency resolution professional (IRP) can handle a total of five cases of resolution or liquidation, including voluntary liquidation, wherein the turnover of the corporate debtors is less than or equal to Rs 1,000 crore. As the matrix progresses, an IRP handling the case of a corporate debtor with the turnover of Rs 50,000 crore would be able handle only that very case, and no more.

“On the basis of information available, it is observed that a few IPs are handling too many assignments under the Code, which is detrimental to the institution of IP in the long run,” it noted.

The IBBI’s discussion paper said that the processes under the Insolvency and Bankruptcy Code (IBC) require a unique combination of skill sets in terms of subject matter knowledge and management skills for an IP and at different stages of transactions, different sets of skills are called for.

A spike in one area of expertise will not be sufficient to create a uniform experience for stakeholders. Further, it cannot be ignored that no two IPs possess identical sets of qualification, experience, skills and expertise, it said.

“Similarly, no two CIRPs are same as it involves diverse businesses, complex corporate structures, varied stakeholders. The said restriction on an IP will put a check on undesirable instances of delay and disturbance to the processes led by IPs while simultaneously handling too many assignments under the Code.”

The Board was of the view that with limits in place, quality of output is expected to improve and it will facilitate the realisation of the objective of value maximisation as enshrined in the Code.

The major inputs for violation will be through complaints and therefore, the cost of surveillance for the Board may not be significant. Further, this will be conducive for development of the market for professionals as more talent will be drawn towards IP profession, it added.

The IBBI has sought public comments on the proposal till July 25, 2020.

Source: Economic Times

NCLT makes ‘default record’ mandatory

by | posted in: Corporate & Business Advisory Services, Corporate Updates, Economy, Business Updates, Corporate Affairs, Income Tax,e-Filing- Individuals, Firms, Companies | 0

Financial creditors moving the National Company Law Tribunal (NCLT) for initiation of insolvency process will have to mandatorily file ‘default record’ from the information utility (IU). No new petition will be entertained without record of default under Section 7 of the Insolvency and Bankruptcy Code (IBC), said the NCLT in a new directive.

The NCLT has also directed authorised representatives/ parties, in the cases pending for admission under Section 7 of the IBC, to file default record from an IU before the next date of hearing.

What is an IU?

An information utility is a repository of electronic evidence. It is an information network that stores financial data such as borrowings, default, and security interests, among others, of firms.

In India, the National e-Governance Services Limited ( NeSL), in mid-2017, became the first IU for bankruptcy cases under the insolvency and bankruptcy code (IBC).

A record of default is a statement of default on a particular loan and facility. With the latest NCLT move, the entirety of an IU as an integral part of the process to establish default and allow immediate admission before such a Tribunal is now complete, say experts.

The Corporate Affairs Ministry (MCA) had, about four months back, internally taken a decision that there is a need to make IU evidence mandatory in insolvency admission matters.

Today, the NeSL, which started its journey in September 2017, has information of loan details of 100 per cent of the corporates in India. It is sitting on data of ₹76-lakh crore of corporate borrowing outstanding.

As of end April this year, 220 financial institutions, including 75 banks, 147 NBFCs, and two debenture trustees, have uploaded data on the NeSL. Reacting to the latest NCLT move making record of default from an IU mandatory, S Ramann, Managing Director and CEO, NeSL, said: “We are satisfied that the Information Utility is playing its part as per the design of the IBC.”

Vidisha Krishan, Partner, MV Kini & Co, a law firm, said that till date the default record from IU was not mandatory, and even other records or evidence were sufficient to demonstrate a default.

However, now it has been made compulsory vide the latest direction, she added.

 

Read The NCLT Order dated 12.05.2020

 

Govt suspends IBC provisions that trigger fresh insolvency proceedings

by | posted in: Accounting Standards, Audit, Due Diligence, Company Incorporations, e-filing of MCA Returns, Corporate & Business Advisory Services, Corporate Updates, Economy, Business Updates, Corporate Affairs | 0
As per existing norms, if a payment default exceeds 90 days then the lender concerned has to refer the account for resolution under IBC or any other mechanism permitted by the Reserve Bank of India (RBI). The lender does not have the option to restructure the loan.

The government has decided to suspend insolvency and bankruptcy proceedings for at least six months owing to challenges businesses are facing due to the Covid-19 pandemic.

A new Section is likely to be added to the Insolvency and Bankruptcy Code (IBC).

It will suspend Sections 7, 9, and 10, which are used to trigger insolvency proceedings for six months or a period not exceeding one year from the date they commence, the official said.

A new Section is likely to be added to the Insolvency and Bankruptcy Code (IBC).

It will suspend Sections 7, 9, and 10, which are used to trigger insolvency proceedings for six months or a period not exceeding one year from the date they commence, the official said.

Section 7 of the Code enables financial creditors to start insolvency proceedings against a company while Section 9 gives operational creditors these powers.

Under Section 10, the promoter of the company can trigger insolvency proceedings against his or her own concern.

All the three Sections will cease to be effective for six months or further.

The provision is likely to require a change in the Act, according to experts.

“This is a positive step for companies.

But for companies, which were otherwise already in stress and could have found resolution under the IBC, their resolution may also be delayed due to this suspension,” said Anshul Jain, partner, PwC India.

Jain also said it needed to be seen if this move would have a positive impact on privately negotiated transactions on mergers and acquisitions.

In March, Union Finance Minister Nirmala Sitharaman had indicated the government would consider suspending the IBC for a few months if the Covid situation persisted and caused stress to businesses.

Already, the default threshold for stressed companies facing insolvency has been increased from Rs 1 lakh to Rs 1 crore.

In March, Union Finance Minister Nirmala Sitharaman had indicated the government would consider suspending the IBC for a few months if the Covid situation persisted and caused stress to businesses. Already, the default threshold for stressed companies facing insolvency has been increased from Rs 1 lakh to Rs 1 crore.

Read the Original Notification:

IBBI Notification dated 20th April, 2020

Insolvency regime for personal guarantors to corporate debtors from December 1

by | posted in: Accounting Standards, Audit, Due Diligence, Company Incorporations, e-filing of MCA Returns, Corporate & Business Advisory Services, Corporate Updates, Economy, Business Updates, Corporate Affairs | 0

The provisions for resolution for individuals under the Insolvency and Bankruptcy Code (IBC) is being implemented in a phased manner. On Friday, the corporate affairs ministry said the provision pertaining to personal guarantors to corporate debtors will be in force from December 1
A case is taken up for resolution under the law only after approval from the National Company Law Tribunal.

The insolvency regime for individual guarantors to corporate debtors will be in force from December 1, according to the government.

The provisions for resolution for individuals under the Insolvency and Bankruptcy Code (IBC) is being implemented in a phased manner.

On Friday, the corporate affairs ministry said the provision pertaining to personal guarantors to corporate debtors would come into force from December 1.

The Code provides for a market-driven and time-bound resolution for stressed assets.

A case is taken up for resolution under the law only after approval from the National Company Law Tribunal (NCLT).

In October, Corporate Affairs Secretary Injeti Srinivas said personal insolvency regime would be fully operational in one year.

“In the first phase, personal guarantor to a corporate debtor is almost under commencement. The next would be the fresh start process, basically giving relief to very small borrowers who are not in a position to repay the debt. That may be in another four to six months. Then proprietorship and partnership and others,” he had said.

Source : Economic Times

IBC proceeds formula may be reworked to avoid squabbles, legal delays

by | posted in: Company Incorporations, e-filing of MCA Returns, Corporate & Business Advisory Services, Corporate Updates, Economy, Business Updates, Corporate Affairs | 0
The Centre is looking at further changes to the IBC as it doesn’t want to leave any room for litigation on the distribution of proceeds.

The government is considering a formula for distributing the proceeds of insolvency resolution among financial and operational creditors in a fixed proportion, said people with knowledge of the matter. The goal is to protect the interests of operational creditors and reduce delays due to litigation, ensuring that the objective of the Insolvency and Bankruptcy Code (IBC) is preserved.

“This is one of the solutions that is being looked at,” an official said. The government will take a final call only after extensive deliberations, he added.

Distribution of resolution proceeds has emerged as one of the key factors behind the extended litigation, delaying major insolvency cases. Dissatisfied operational creditors have been the source of such cases in some instances.

The Supreme Court is currently deciding on the distribution of proceeds in the case of Essar Steel, which entered the National Company Law Tribunal (NCLT) system in August 2017. The process was thought to have ended when Arcelor Mittal’s Rs 42,000-crore bid for the debt-ridden steel manufacturer was approved in March 2019. But the original promoters, the Ruias, opposed approval of the plan, questioning Arcelor Mittal’s eligibility.

Operational creditors rejected the plan on the grounds of discriminatory treatment. Financial creditor Standard Chartered Bank has also gone to court against the resolution plan on the same grounds. Financial creditors moved the Supreme Court after the National Company Law Appellate Tribunal (NCLAT) ordered proportional recovery for both financial and operational creditors. Under the IBC, cases have to be decided within a 330-day window.

The decision to change the rules to grant greater protection to operational creditors had come from the “highest levels of the government,” said one of the persons.

The Centre is looking at further changes to the IBC as it doesn’t want to leave any room for litigation on the distribution of proceeds, the person said. The IBC is regarded as one of the signal reforms of the first Narendra Modi government. The process got bogged down in litigation over some of the biggest cases, blunting the IBC’s aspiration of speeding up bankruptcy resolution and cleaning up banks’ books. The 2016 IBC has already been tweaked several times toward this end.

Operational creditors had slightly higher recoveries than financial creditors, according to data available with the government, said the person cited above. The Insolvency and Bankruptcy Board of India has pegged the average recovery for financial creditors in cases where there was successful resolution at 41.5% at the end of the September quarter.

In the latest set of amendments to the IBC, carried out in the budget session of parliament, the government had clarified that the CoC would have the right to decide on the distribution of proceeds but that all creditors must receive liquidation value or the amount they would receive if resolution proceeds were distributed according to the ‘waterfall mechanism,’ whichever is higher.

The waterfall mechanism under the IBC outlines the order of priority for repayment to creditors in the event of liquidation.

Under this, secured creditors have to be paid fully before any payments can be made to unsecured financial creditors who in turn have priority over operational creditors.

Experts said the government will have to come up with a balanced formulation. Setting a high fixed proportion for operational creditors could prompt CoCs to opt for liquidation instead of resolution. “At present, in many cases, operational creditors are not getting anything,” said Manoj Kumar, partner at Corporate Professionals.

Source: Economic Times