Summary of amendments in the Insolvency and Bankruptcy Code (IBC)

2016 via IBC 2019

Section Summary Applicability on ongoing cases (EY interpretation)
5(26) Resolution plans can include comprehensive restructuring Resolution plans not approved by CoC on the date of
schemes like merger, demerger etc. amendment
7(4) NCLT to record reasons in writing if admission or rejection Cases not yet admitted
order not passed in 14 days
12 - Proviso Insolvency process shall be completed mandatorily within (a) Crossed 270 days but less than 330, total 330 days
330 days otherwise liquidation (b) Crossed 330 days, will get 90 days from date of
amendment
25(3A) Voting for FC covered u/s 21 (6A) like home buyers will be On subsequent voting of matters in the CoC
based on majority, present and voting

30(2)(b) Payment of minimum of liquidation value to dissenting FCs Resolution plans not approved yet or rejected earlier by
and payment to OCs NCLTs, plans appealed against or under litigation
31(2) Plan binding on the central government, state Resolution plans not approved by CoC on the date of
governments and local authority amendment
33(2) Liquidation can be initiated during CIRP anytime after first Once CoC has been constituted and before confirmation of
CoC resolution plan

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 Resolution plans can include comprehensive restructuring schemes
like merger, demerger, amalgamation etc.

Implications Food for thought

► Provide flexibility to resolution applicants (RA) ► Does this mean, in case a corporate debtor is
in proposing structures in the plans. dealing with multiple businesses like
Infrastructure, real estate, trading,
manufacturing etc it would be allowed to sell
► Improve on faster implementation of plans as different businesses to different resolution
this could act as a ‘single step clearance’. applicants under a single resolution plan?

► Could lead to better recoveries as structures

proposed in the plan could be more tax
efficient for RAs.

► Would reduce procedural and compliance time

and cost.

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 NCLT to record reasons in writing if admission or rejection order is
not passed in 14 days

► Amendment is done with the intent of pushing faster disposal of applications filed with NCLT.

► 14 day timeline was already provided in IBC. Currently, it is taking much longer (4-6 months at times to get a case
admitted) owing to arguments being heard and perhaps limitation of judicial bandwidth.

► Amendment only proposed in section 7, hence only applicable in case an application is filed by a financial creditor.

► The Hon’ble Supreme Court in case of ‘Juggilal Kamlapat Jute Mills’ ruled that the timelines provided in sections
7, 9 and 10 for deciding a matter within 14 days as well as the time to remove a defect within 7 days are directory
and not mandatory.

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 Insolvency process shall be completed mandatorily within 330 days
otherwise liquidation

Implications Food for thought

► Deadline for completion in 330 days include litigation ► Existing cases where 330 days are not completed
and other judicial process. but for e.g. have completed 270 days, what would
► 180 days + 150 days = 330 days whereby 150 be the revised timelines?
days can be the time to be taken in legal
proceedings of such CIRP. ► The Hon’ble Supreme Court in Oct 2018, in case of
► 180 days + 90 days+ 60 days = 330 days Essar Steel ruled that the time taken up by litigation
whereby only 60 days can be the time to be during CIRP has to be excluded from the mandatory
taken in legal proceedings of such CIRP if already limit of 180/270 day timeline. Would this view
an extension of 90 days has been sought by RP. change post the amendment?
► Existing cases where 330 days are already completed
would get another 90 days from date of this ► If the court is not able to pass the order by the end
amendment being made applicable. of 330th day, would it result in liquidation as per
Sec 33(1) of the code despite having resolution
► As on June 2019, 445 out of 1,292 (more than 30%) plan in hand?
ongoing cases have crossed 270 days deadline.

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 Voting rules changed for financial creditors covered under
section 21 (6A)

► This mainly pertains to the class of creditors represented by an authorised representative (AR) u/s 21 (6A) of
the code. For e.g. home buyers, bond holders etc.

► The proposed amendment provides that an AR will cast vote for the FCs he represents in accordance with the
decision of the majority vote of such FCs (>50%). This would be determined on a present and voting basis.

► This would provide a major push to the faster completion of CIRP where large groups of such FCs are involved,
particularly home buyers and distributed bond holders.

► 50% calculation will be by voting share and not by number.

► The majority shall be counted based on the present vote cast by the FCs.

For e.g. – if there are 10,000 home buyers, and 2,000 vote on a resolution with 1,001 or more (50% or more) voting
in favour of the resolution. It would be considered as a ‘yes’ vote for all the 10,000 home buyers. Assuming, for
simplification, that all home buyers have the same claim amount.

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 Payment to operational creditors

Operational creditor share = Liquidation vale (LV) of claims

Or
Resolution plan value (RPV)
} Which ever is higher

► It is clarified that if the distribution is done as per above, it would be treated as fair and equitable.

► This would also be applicable even to ongoing cases where plan has not been approved yet or where the plan has been
approved, it has not been implemented yet owing to ongoing litigation.

For e.g. – If the total LV value is INR. 1,000 and RPV is INR. 1,500 and OC’s share as per the order of priority under
section 53 in the LV is INR.100 and in RPV is INR. 150. Then INR. 150 would be distributed among all OCs
proportionately.

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 Payment to dissenting financial creditors

Implications Food for thought

► Dissenting financial creditors (DFC) to be paid ► Timing of payment to such DFC as compared to
liquidation value as determined per the order assenting FC has not been specified. Should it
of priority under section 53 of IBC. be reflective of order of priority as well?

► It is clarified that if the distribution is done as ► If LV to DFC is to be paid before assenting FC, it
per above, it would be treated as fair and might disincentivize the COC from approving
equitable. the plan if the plan value is close to LV or if it
has a deferred payment structure.
► CoC should consider the order of priority
amongst FCs as per sec 53(1) (including ► If in case of existing cases, redistribution is
priority and value of security interest of required would COC have an option to vote
secured creditors) when determining the again?
manner of distribution.

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 Resolution plan binding on the central government, state
governments and the local authority

► IBC always provided that the resolution plan approved by the NCLT will be binding on all stakeholders. A specific
amendment has been made clarifying that the resolution plan will also bind the government.

► This should help reducing litigations during and after implementation of the plan.

► Should prompt government departments to actively submit claims during CIRP.

► Amendment would further provide confidence to resolution applicant and reduce post plan uncertainty, as
government authority claims post approval claims has been one big concern raised by the resolution applicants.

Food for thought

► Will this amendment impact cases where NCLT has approved the plan without giving any exemption to tax litigations?
► The ongoing litigations pertaining to contingent liabilities still remain open to be dealt with.

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 Now liquidation can be referred by COC anytime during CIRP

Implications

► Sec 33 (2) already provides for liquidation at any time during CIRP. Vide this amendment, an explanation has
been inserted and additional clarification being provided that the liquidation can be proposed even before the IM
is prepared. This will be with 66% vote by COC.

► IBC 2019 amendment provides power to the COC to take the decision to liquidate the corporate debtor (CD)
after the constitution of COC and at anytime before confirmation of the resolution plan.

► The amendment would help in initiating liquidation process sooner in case there is no business viability for CD.

► As at 31 March 2019, 378 cases slipped into liquidation via CIRP, of which 273 did not get a plan during CIRP
period.

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