The Centre’s plan to effect changes to the Insolvency and Bankruptcy Code (IBC) so as to achieve time-bound resolution of stressed assets has evoked mixed reactions among insolvency law experts. Some contend that the proposals aimed at minimising delays may not help in yielding the expected outcomes.

The Corporate Affairs Ministry (MCA) had on Thursday invited public comments on the proposed changes, including introduction of fixed time period of 30 days by when a resolution plan have to be approved or rejected.

IBC changes have also been proposed to address the delays in admission of application for initiation of corporate insolvency.

‘Not very helpful’

Commenting on the proposed IBC changes, Bikash Jhawar, Partner, Saraf & Partners, said the proposals dealing with minimising time may not be very helpful as they don’t go to the root cause of delay which is meaningless challenges both at admission and at resolution.

It has to be clarified legislatively that the tribunals including appellate tribunal in case of a Section 7 application should not entertain any intervention by the Corporate Debtor or other person since it only has to satisfy itself of existence of default and not why the default occurred.

Also read: ‘Overall recovery rate under IBC improved till March-end 2021’

Jhawar however, noted that the proposal to deal with avoidance transactions post the CIRP of a corporate debtor is a welcome proposal.

Similarly, the proposal around the IBC fund and its utilisation, especially related to cash strapped insolvency, is quite salutary, he said. The fund could also be used to provide interim finance as quite often operations during CIRP suffer due to lack of reasonably priced interim finance, Jhawar said.

‘Enhancing IBC’s efficacy’

Ashish Chhawchharia, Partner and National Head - Restructuring Services, Grant Thornton Bharat, said the recent amendments proposed by the Insolvency Law Committee (ILC) will further enhance the efficacy of IBC by addressing some of the pressing concerns such as inordinate delays in admissions and approval of resolution plans by NCLT. Also, streamlining avoidable transactions framework and removing some ambiguities in this area will certainly help in enhancing the asset pool available to creditors, he said.

Also read: Govt seeks comments on proposed changes to IBC

“These timely interventions clearly indicate that the government has its ear to the ground and willing to make changes to make this landmark reform even more successful,” Chhawchharia said.

‘Welcome step’

Aseem Chawla, Managing Partner, ASC Legal, said: “As a measure of instilling best practice, comments from public and stakeholders have been sought on the recommendations put forth by the ILC. “Suggested changes for stakeholder inputs have been identified in the admission of insolvency application. A fixed time period is being proposed of being 30 days for approval or rejection of plan. All in all, this is a welcome step.”

‘Clarity needed’

Neha Naik, Associate Partner, Phoenix Legal said the dependency on Information Utilities records, at least for Section 7 applications, as well as crystallising a time period for approval of resolution plans is a welcome move.

She said the resultant faster disposal of such applications will reduce the possibility of frivolous applications or objections filed by third parties in order to delay the resolution process, which is currently the cause for many corporate debtors eventually facing liquidation.

The proposed changes relating to avoidance transactions may not provide the desired results from a practical perspective and may well delay the entire CIRP even further, she said.

Also clarity on whether applications for avoidance transactions can continue after approval of resolution plans will be helpful as this has always been a grey area in the resolution process, she added.

Related Topics