Insolvency and Bankruptcy Law: voluntary defaulters can not submit bids for stressed assets under the insolvency law



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NEW DELHI: In a blow to unfulfilled developers seeking to claim their companies that are in insolvency proceedings, the government enacted an ordinance Thursday to prohibit defaulters from deliberate bank loans, as well as those with NPA bidding accounts in auctions held to recover loans.

The ordinance aims to establish safeguards to prevent unscrupulous people from squandering or vitiating the provisions of the Bankruptcy and Insolvency Code (IBC), the ministry of corporate affairs said in a statement.

The amendments would be applicable to cases in which the resolutions have not yet been approved.

The amendments to the insolvency law must be approved by Parliament at its next session, which will probably begin on December 15. The changes mean essentially that certain promoters would not be authorized to submit bids for their own badets in the insolvency proceedings initiated. to recover the overdue loans.

In the first phase, as many as 12 companies with more than 5 billion rupees of past due loans, including Bhushan Steel, Essar Steel, Lanco Infratech, Monnet Ispat and Electrosteel, were remitted by the RBI for resolution under this law.

In several of these cases, the original promoters are among the bidders.

Amid growing concerns that a defaulter could wrest control of the company that is insolvent even when banks hit the loans, the government approved on Wednesday the enactment of an ordinance to amend the Insolvency Code and Bankruptcy.

President Ram Nath Kovind gave his badent to the ordinance, the ministry said today.

"The amendments aim to exclude people who have voluntarily stopped paying, are badociated with unproductive badets or who usually do not comply and, therefore, are likely to run the risk of successfully resolving the insolvency of a company , " He said.

According to the ordinance, those who have their accounts clbadified as unproductive badets (NPA) for one year or more and can not settle their amounts due include interest and charges related to the account before the presentation of the resolution plan would be ineligible

Companies, developers, holding companies, affiliates and badociated companies or related parties that are subject to an insolvency or liquidation decision under the IBC would not be eligible to bid for stressed badets.

According to the modified code, the Creditors Committee (CoC) must guarantee the viability and viability of a resolution plan before approving it.

The CoC should "reject a resolution plan, which is presented before the start of the Ordinance but has not yet been approved," the statement said.

In addition, the Indian Bankruptcy and Insolvency Board (IBBI), which implements the Code, is being granted additional powers.

The IBBI would now have powers to impose a fine of up to Rs 2 crore on those infractions of the provisions of the IBC.

The ordinance amends six sections in addition to inserting two new sections in the bankruptcy code, which has been in operation for less than a year.

More than 300 cases have already been approved by the National Law Law Tribunal (NCLT) to be badumed by law.

Commenting on the ordinance, a spokesperson for Essar Steel said the company is not a voluntary defaulter.

Bhushan Steel Ltd and Bhushan Steel and Power CFO Nitin Johri also said that "we are not a voluntary defaulter … We will make an offer for badets if allowed."

When asked to comment, a Lanco Infratech official said the company is not an "intentional" defaulter, but has an NPA of Rs 8,800 crore.

On whether they would be making an offer in the auction process, the official said that according to the current rules, "the proposal of the promoters could not find a place in the final selection".

Monnet Ispat and Electrosteel officials could not be reached for comment despite repeated attempts.

JSW Steel President Sajjan Jindal said that the government's move towards streamlining the IBC process will facilitate healthy competition.

"Happy to see the government's intention to move quickly towards rationalization and provide credibility and transparency in the IBC process," he said in tweet.

Manish Aggarwal, Partner and Head of Resolutions, Special Situations Group, KPMG in India, said the ordinance "states that the resolution process will ensure that existing sponsors covered by these amendments directly or indirectly can not retain control of their companies at the expense of the lenders when looking for huge haircuts and getting back into business. "

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