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

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

NCLAT quashes NCLT order to make MCA party in all insolvency cases

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

NCLAT quashes NCLT order to make MCA party in all insolvency cases as this will be not only excessive but perhaps counterproductive

The National Company Law Appellate Tribunal (NCLAT) quashed an order of the National Company Law Appellate Tribunal (NCLT) directing that the Ministry of Corporate Affairs (MCA) be made a party to every case under the Insolvency and Bankruptcy Code (IBC) on Monday.

According to the appellate tribunal, the NCLT’s order, was beyond the power of the tribunal as it was tantamount to the imposition of a new rule in a compelling fashion

The impugned order making it applicable throughout the country to all the benches of NCLT is untenable and it suffers from material irregularity and patent illegality in the eye of law, said the judgment of the three-judge bench headed by Justice Venugopal M.

“The NCLAT ruled that the MCA need not be a party to all Section 7,9 and 10 applications, although they may be impleaded in certain cases based on exercise of judicial principles and following principles of natural justice. Although the MCA has been central in the implementation of the IBC, their being a party to every single IBC fillings is not only excessive but perhaps counterproductive,” said Richa Roy, partner at Cyril Amarchand Mangaldas.

In November 2019, the NCLT had directed the MCA, through its secretary, be party to all cases under IBC on the grounds that authentic records would be made available by officers of the MCA.

The Centre challenged the order arguing that such rule making was the exclusive domain of the government. It further said that authentic records could be furnished by the Registrar of Companies and certified copies could be made available for a fee.

The NCLAT order added that such “wholesale, blanket and omnibus directions” cannot be issued in a single stroke” and impleadment of the MCA can only be determined on a case-to-case basis.

Relief for MSMEs! Insolvency proceedings threshold increased to Rs 1 crore from Rs 1 lakh

by | posted in: Corporate & Business Advisory Services, Corporate Updates, Economy, Business Updates, Corporate Affairs | 0

IBC
Also coronavirus related debt would be excluded from the definition of “default” under the insolvency and bankruptcy code (IBC)

Finance Minister Nirmala Sitharaman on Sunday raised the minimum threshold to initiate insolvency proceedings to Rs 1 crore from the earlier Rs 1 lakh.

In addition, with an eye on further enhancement of ease of doing business, the government announced suspension of fresh initiation of insolvency proceedings up to one year.

Also corona virus related debt would be excluded from the definition of “default” under the insolvency and bankruptcy code (IBC). “No fresh insolvency proceeding will be initiated up to 1 year.

At the moment MCA has extended this by 6 months, we intend to extend this by another 6 months. For MSMEs a special insolvency framework will be notified under section 240-A of IBC.

The minimum threshold to initiate insolvency proceedings raised to Rs 1 crore from the earlier Rs 1 lakh, which largely insulates MSMEs,” she added.

The Finance Minister, in her fourth presser on Saturday, had announced structural reforms in sectors such as coal, minerals, civil aviation, power distribution, defence production, space, and atomic energy sector.

The reforms were unveiled as a part of the government’s efforts to make India ‘Aatmanirbhar‘ (self-dependent).

Sitharaman has already announced four phases of relief measures to support agriculture, MSMEs, migrant workers, individuals, coal mining, defence, aviation sector, among others amid the ongoing corona virus-induced lock down.

Source: Business Today

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