Skip to main content

Govt moves amendments to plug loopholes in insolvency law

Govt moves amendments to plug loopholes in insolvency law
The Insolvency and Bankruptcy Code (Amendment) Bill 2017 allows defaulting promoters to be part of the debt resolution process, provided they repay dues in a month
The government on Thursday moved amendments to the Insolvency and Bankruptcy Code (IBC), seeking to streamline the law and plug loopholes.The Insolvency and Bankruptcy Code (Amendment) Bill 2017, introduced by finance minister Arun Jaitley in the Lok Sabha, allows defaulting promoters to be part of the debt resolution process, provided they repay dues in a month.
This will aid promoters who had submitted resolution plans before the enactment of an ordinance that barred them from taking part in the resolution process of the companies.Further, it has paved the way for asset reconstruction companies, alternative investment funds (AIFs) such as private equity funds and banks to participate in the bidding process.
Many of these entities acquire distressed assets and the classification of these assets as non-performing assets (NPAs) would have disqualified them from the bidding process.Similarly, banks opting to convert their debt into equity under the Reserve Bank of India’s scheme for sustainable structuring of stressed assets would have inadvertently become promoters of these insolvent companies and thereby been barred from the resolution process.
The amendments aim to correct these anomalies.They seek to strike a fine balance in the trade-off between punishing wilful defaulters and ensuring a more effective insolvency process.The bill has also sought to bring any individual who was in control of the NPA under the ambit of the insolvency code. It lays out that the individual insolvency law will be implemented in phases. It also allows guarantors of insolvent firms to bid for other firms under the insolvency process
The bill replaces an ordinance that was brought in last month. The ordinance sought to bar wilful defaulters, defaulters whose dues had been classified as NPAs for more than a year and all related entities of these firms from participating in the resolution process.
The amendment bill has addressed concerns about some of the stringent provisions in the ordinance that investors felt could have made the resolution process a non-starter. Analysts say the dilution of the clauses may not be enough for an effective resolution process.
“The bill dashes hopes of all bonafide promoters who were expecting to be ring-fenced and brands all acts of default as malfeasance,” said Sumant Batra, an insolvency expert, adding that the insolvency code was envisaged as a resolution tool rather than a loan-recovery tool.
He added that the law does not recognize promoters who may be facing genuine operational or financial difficulties because of external factors such as policy decisions.
The IBC was enacted in 2016 to find a time-bound resolution for ailing and sick firms, either through closure or revival, while protecting the interests of creditors. A successful completion of the resolution process was expected to aid in reducing rising bad loans in the banking system.
As of end-September, NPAs in the Indian banking system made up around 9.85% of total advances, according to Care Ratings.The position of promoters has largely remained unchanged except for certain clarifications offered by the amendment bill, said Sapan Gupta, national practice head, banking and finance, at law firm Shardul Amarchand Mangaldas.
“They continue to remain ineligible as was the position in ordinance. AIFs will be exempted from the qualification criteria but in general the size of AIFs is not big enough to make any meaningful contribution to the availability of funds. However, it does provide them a window of opportunity to scale up,” he said.
The Mint, New Delhi, 29th December 2017

Comments

Popular posts from this blog

Shrinking footprints of foreign banks in India

Shrinking footprints of foreign banks in India Foreign banks are increasingly shrinking their presence in India and are also becoming more conservative than private and public sector counterparts. While many of them have sold some of their businesses in India as part of their global strategy, some are trying to keep their core expertise intact. Others are branching out to newer areas to continue business momentum.For example, HSBC and Barclays Bank in India have got out of the retail business, whereas corporate-focused Standard Chartered Bank is now trying to increase its focus on retail “Building a retail franchise is a huge exercise and takes a long time. You cannot afford to lose it,” said Shashank Joshi, Bank of Tokyo-Mitsubishi UFJ’s India head.According to the Reserve Bank of India (RBI) data, foreign banks’ combined loan book shrunk nearly 10 per cent from Rs 3.78 trillion in fiscal 2015-16 to Rs 3.42 trillion last financial year. The banking industry, which includes foreign banks…

RBI rushes in to prop up falling rupee

RBI rushes in to prop up falling rupee India’s central bank reportedly intervened in the currency markets on Monday to prevent a further slide in the local unit, which breached the 67 mark to a dollar for the first time in 15 months amid a widening trade gap and runaway import bills fuelled by high crude-oil prices. Some state-owned banks were seen selling dollars aggressively, interventions that market dealers attributed to the central bank’s strategy to stem the decline of the Indian rupee against the US currency. The rupee is the worst performing among a dozen Asian monetary units in the past three months. It lost 4.25 per cent to the dollar during the period, show data from Bloomberg. On Monday, the Reserve Bank of India (RBI) is said to have sold about Rs 800 million collectively on the spot and exchange traded futures markets, dealers said. An email sent to RBI remained unanswered until the publication of this report. The currency market has seen such a strong central bank interven…

GST Refund of Rs 20,000 Cr Pending: Exporters’ Body

GST Refund of Rs  20,000 Cr Pending: Exporters’ Body Refund of over Rs 20,000 crore on account of Goods and Services Tax (GST) is pending with the government with more than half the amount stuck as input tax credit, Federation of Indian Export Organisations said on Tuesday. While claims over Rs7,000 crore were cleared in March, the amount was Rs 1,000 crore in April.However, after exporters’ request, the GST council and tax department are organizing a second phase of Special Refund Fortnight starting May 31, which will enable exporters to draw their refunds at a speedy pace. Many exporters have been unable to file the refund of input tax credit due to technical glitches, exports and claim happened in different months. The major challenge lies on ITC refund especially because the process is partly electronic and partly manual which is cumbersome and add to the transaction cost, the exporters’ body said. On IGST, refunds are getting delayed due to airline and shipping companies not submitt…