Amendments in Insolvency and Bankruptcy Code Likely for Faster Resolution

Budget 2022 Expectations: The Union Budget session is set to start from January 31 and Union finance minister Nirmala Sitharaman will present the Budget on February 1, the ministry of parliament affairs said in a statement on Friday, January 14. This year, among many other key decisions, the government is likely to take up the Insolvency and Bankruptcy Code amendment amid calls from MSMEs to take up the cause. According to reports, the IBC is likely to see a strengthening, where measures to speed up solving of cases will be taken along with a cross-border insolvency framework. This comes as the micro, small and medium enterprises in India have been facing issues for over five years now.

The MSME sector in India has its list of demands ready and the The Federation of Indian Micro and Small & Medium Enterprises (FISME) has asked the government to amend the IBC. Based on this, the government of India has invited the public for comments on implementing changes to the legislation.

“The Government of India has invited public comments on some changes to IBC, 2016 (“Code”) with a view to make the Code robust. This includes reliance on records available with Information Utilities to establish financial debt for prescribed categories of financial debtors,” said Yashojit Mitra, partner at Economic Laws Practice.

He also said that the government has invited discussions on “regulating the avoidable transactions and facilitating cooperation with the RP/Liquidator to permit it to investigate such transactions; and giving the creditors power to apply to Adjudicating authority to investigate the avoidable transactions, in certain cases.”

Mitra added that there are expectations that the government will amen the legislation to address quick resolution to insolvency proceedings. “The MSME sector has also raised a demand to be given priority as operational creditors in the Code itself.  Accordingly, we expect that one of the areas of focus of the budget would be to address quick turnaround in insolvency proceedings,” he said.

“Further, given the third wave in the country and covid restrictions in several states, the budget should also ensure that Code can be used in a judicious manner to reduce stress and be a tool in reviving affected corporates,” added Mitra.

According to a report by the Economic Times, the government is also going to bring in a code of conduct the committee of creditors (CoC), which takes decisions on proposals regarding insolvency resolutions. The report also quoted a government official saying that they have received responses received from stakeholders and a Parliament standing committee. “With all relevant views included, we are now in a better position to formulate the regulation,” said the person reportedly to ET.

According to officials, the corporate affairs ministry will roll out these changes from the next financial year with “certain safeguards”.

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