The Insolvency Bankruptcy Code (Second Amendment) Bill, 2018 was introduced in the Parliament on July 23, 2018 to amend the Insolvency and Bankruptcy Code, 2016 and replace the Insolvency and Bankruptcy (Amendment) Ordinance, 2018 that was released on June 6, 2018. The Bill was passed by the Lok Sabha on July 31, 2018 and by the Rajya Sabha subsequently on August 10, 2018, thereby making it a passed legislation (the Act). The various amendments to the existing legislative framework have been listed down below:
- Financial Creditors: The Act deems allottees under a real estate project to be financial creditors. Allottees under a real estate project would include a person to whom a plot, apartment, or building has been allotted, sold or transferred by a real estate developer or a development authority.
- Representative of Financial Creditors: As per the Act, a representative authority can be appointed to represent a class of financial creditors on the committee of creditors. Under the ordinance, the remuneration was to be borne collectively by the financial creditors but under the Act, this remuneration would be a part of the insolvency resolution costs.
- Voting Threshold: Under the Insolvency and Bankruptcy Code, 2016, the voting threshold for all decisions of the committee of creditors was by a majority of 75%. This threshold has been brought down to 51%. A voting threshold of 66% has been prescribed for decisions pertaining to appointment or replacement of resolution professional and approval of resolution plan.
- Disqualification of resolution applicant: Under the Insolvency and Bankruptcy Code, 2016, a person convicted of an offence which is punishable with two or more years of imprisonment was disqualified to be eligible to be a resolution applicant. The Act provides that such disqualification would cease to exist after two years of date of completion of punishment.
- Disqualification of NPAs and guarantors: The Insolvency and Bankruptcy Code, 2016 barred a person identified as an NPA for than a year and a guarantor of a defaulter from being a resolution applicant. This bar has been removed in regard to applicants applying for resolution of MSMEs.
- Withdrawal: The amendment provides for withdrawal of resolution application after initiation of resolution process provided the same has been approved by 90% vote of the committee of creditors.
- Implementation: The Act provides that the resolution plans should contain an implementation mechanism without which approval would not be given. Moreover, the Act also requires that if the resolution plan provides for a merger or acquisition of enterprises, the consent of the Competition Commission of India is required before approval of resolution plan by the committee of creditors.
- Appointment of Interim Resolution Professional: The Act also provides that in case of a delay in the appointment of Interim Resolution Professional, the Insolvency Commencement Date would be considered as the date on which the Interim Resolution Professional was appointed.