Those buying an insolvent asset that has a subsidiary with a non-performing loan may now be allowed to bid for other insolvent assets too. The government is deliberating over the issue and changes in the Insolvency and Bankruptcy Code (IBC) are likely to make this happen.
Under Section 29A of the Insolvency and BankruptcyCode promoters of any defaulting company are not eligible to be a resolution applicant. The amendment by the government is expected to ensure that anyone acquiring an insolvent asset does not become ineligible under the law to offer a resolution plan for another asset.
In response to a query on whether the government was planning to dilute Section 29A, M Sahoo, chairperson of Insolvency and Bankruptcy Board of India said on Wednesday, “I would not be able to comment on that… The insolvency law committee is taking up the industry recommendations… The issue of group entities is in the consideration of the committee.” The government has allowed ineligible promoters to submit a resolution plan if they first clear their dues. The committee of creditors will allow a period of 30 days to the resolution applicant to make the payment of overdue amounts and become eligible to offer a resolution plan.
On the issue of more companies getting into liquidation than resolving insolvency, Sahoo said, “It is not surprising. It is a legacy issue and in the initial days there will be many companies going into liquidation.” Addressing a conference on the new disclosure regime for insolvency professionals Sahoo said that it would not be possible to plug all loopholes in the law at once. “We are learning by experience,” he said. Even though the Insolvency and Bankruptcy Code was introduced about an year ago, the government is still in the process of fine-tuning resolution procedures.
A 14-member IBC law committee, chaired by corporate affairs secretary Injeti Srinivas, has been formed to identify issues that may impact efficiency of corporate insolvency resolution.