As per amendments to the Insolvency and Bankruptcy Code (IBC) that were approved by the cabinet on Wednesday, lenders will be required to seek prior approval of the competition regulator before finalising resolution plans. As of now, the winning bidder approaches CCI for clearance before formally taking over the asset.
The cabinet approved the IBC Amendment Bill 2018 that will replace the ordinance the government had promulgated earlier. The measure seeks to prevent litigation that can derail the resolution process at a later stage, said a top government official and two bank executives.
It recognises homebuyers as financial creditors in the matter of bankruptcy proceedings against real estate developers, ensuring some measure of compensation for them.
“We are strengthening the system, leaving little room for disgruntled promoters to stall the process on any pretext,” said the official, adding that seeking CCI’s nod will also reduce monopoly risk. “If they feel that there are two parties and selecting highest bidder may lead to competition issues, they can also send details of the second highest bidder (to CCI) to avoid any delays,” he added.
In the most successful resolution through IBC so far, Tata Steel sought CCI approval after being declared the successful bidder for Bhushan Steel.
A senior CCI official said the regulator will have to decide on such matters within a fixed time frame. “We don’t see that this is going to cause any delay,” he said. “Also, the banks would feel secure that they do not have to go back to the drawing board again.”
In most IBC cases, besides approval of the National Company Law Tribunal (NCLT), that of CCI is the only other condition for implementation of the resolution plan, said Anshul Jain, partner with law firm Luthra & Luthra Law Offices. “So, if this is covered under the revised amendment bill, then it will help NCLT also to approve only those plans which are already reviewed and approved by CCI,” he added.
The cabinet has also approved, under the proposed amendments, relief for micro, small and medium enterprises (MSMEs). The promoter of a bankrupt MSME undergoing resolution can bid for his enterprise, provided the person is not a wilful defaulter and isn’t liable to be disqualified for other reasons.
This has been done because promoters are usually the only ones interested in such assets, offering the prospect of revival and jobs being saved. Without a resolution plan, assets have to be liquidated.
The proposed amendments are expected to balance the interests of various stakeholders, especially those of home buyers and MSMEs. The idea is to promote resolution over liquidation of corporate debtors and lowering the voting threshold of committee of creditors--from 75% to 66% for important decisions and from 75% to 51% for routine decisions--will help in this regard.