Summary-
India's Ministry of Corporate Affairs recently released a Discussion Paper inviting public comments on proposed changes to the Insolvency and Bankruptcy Code, 2016 (IBC). The paper is quite comprehensive in terms of the scope of proposed changes such as separating the resolution plan from the distribution of proceeds; pooling assets of borrowers and guarantors; collectively resolving interconnected entities; addressing abstentions during voting by proposing a mechanism for 'present and voting'; etc.
The Discussion Paper emphasizes the importance of effectively implementing individual insolvency cases and streamlining the liquidation process, including quicker dissolution and eliminating duplication of activities. The paper lays great emphasis on the admission of companies into insolvency and how that process needs to be expedited. In line with this, the NCLTs have also prioritized listing of admission cases by directing that such cases must be at the very top of the list. This leaves almost no time whatsoever to hear other types of cases - such as those listed for the approval of resolution plans, which have already been approved by the CoC.
While these amendments could be one of the most significant and comprehensive updates to the IBC ecosystem in India, there is an urgent need for prioritizing the approval of resolution plans rather than expediting the admission of companies into insolvency. The IBC ecosystem has to be driven by investors and resolution applicants, who will rescue and revive insolvent companies. That can never be achieved if an admission case gets prioritized over the approval of a resolution plan. Ensuring timely and swift approval of resolution plans will help clear out the backlog, increase investor confidence, maximize value, and boost the economy in general, which is the primary objective off the code.
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