IBC Amended To Ring-Fence New Buyers Of Stressed Assets From Criminal Proceedings Against Previous Promoters

The Union Cabinet chaired by the Prime Minister Narendra Modi today approved significant changes to Insolvency and Bankruptcy Code, 2016 (code), through the Insolvency and Bankruptcy Code (Second Amendment) Bill, 2019.

The amendments seeks to remove certain difficulties being faced during insolvency resolution process to realise the objects of the code and to further ease doing of business.

Among the amendments approved by the Union cabinet is to ring-fence corporate debtor resolved under the IBC in favour of a successful resolution applicant from criminal proceedings against offences committed by previous management/promoters. This amendment will expedite the insolvency process including the final closure of Bhushan Power and Steel (BPSL) case.

The new promoters JSW Steel has been seeking immunity against the criminal investigations against the erstwhile promoters of BPSL.

The Enforcement Directorate (ED), as part of its investigation, has attached the properties of BPSL under Prevention of Money Laundering Act (PMLA). Despite National Company Law Appellate Tribunal (NCLAT) directions, ED has refused to lift the freeze on sale of BPSL.

ED has attached BPSL's land, buildings, plant and machinery in Odisha worth more than Rs 4,000 crore over alleged diversion of bank funds,

While the ED is of the opinion that it can attach the property of BPSL under the Prevention of Money Laundering Act, the ministry has been maintaining that the agency cannot do so as proceedings under the IBC are on.

Due to the resulting stalemate, banks are yet to receive ₹19,350 crore from JSW Steel for acquiring Bhushan Power and Steel (BPSL) even after National Company Law Tribunal (NCLT) approving its resolution plan. The newly introduced amendent will prevent recurrence of cases like Bhushan Power and Steel Ltd. (BPSL).

The union cabinet also approved the following amendents to the the Insolvency and Bankruptcy Code.

• Removing bottlenecks, streamline the CIRP and protection of last mile funding will boost investment in financially distressed sectors.
• Introduction of additional thresholds for Financial Creditors represented by an authorized representative due to large numbers in order to prevent frivolous triggering of Corporate Insolvency Resolution Process (CIRP).
• Ensuring that the substratum of the business of corporate debtor is not lost, and it can continue as a going concern by clarifying that the licenses, permits, concessions, clearances etc. cannot be terminated or suspended or not renewed during the moratorium period.