Govt proposes slew of changes to insolvency law

'To strengthen the functioning of the IBC, changes to the Code are being considered,' the ministry said

The government on Wednesday proposed a slew of changes to the insolvency law, including fast-tracking the process and expanding the scope of the pre-packaged framework.

The Insolvency and Bankruptcy Code (IBC), which came into force in 2016, provides for a market-linked and time-bound resolution of stressed assets. The Code has already undergone various amendments.

"To strengthen the functioning of the IBC, changes to the Code are being considered in relation to the admission of corporate insolvency resolution process (CIRP) applications, streamlining the insolvency resolution process, recasting the liquidation process, and the role of service providers under the Code," the ministry said in a notice.

Among other changes, the corporate affairs ministry has suggested developing a state-of-the-art electronic platform that can handle several processes under the Code with minimum human interface.

"It is being considered that this e-platform may provide for a case management system, automated processes to file applications with the AAs, delivery of notices, enabling interaction of IPs (Insolvency Professionals) with stakeholders, storage of records of CDs (Corporate Debtors) undergoing the process, and incentivising participation of other market players in the IBC ecosystem," the notice said.

The ministry has also proposed redesigning the Fast-Track Corporate Insolvency Resolution Process (FIRP) to allow financial creditors to drive the insolvency resolution process for a CD outside of the judicial process while retaining some involvement of the Adjudicating Authority (AA) to improve the legal certainty of the final outcome.

"It is being considered that the provisions dealing with FIRP may be amended to provide that unrelated FCs (Financial Creditors) of a CD may select and approve a resolution plan through an informal out-of-court process and involve the AA only for its final approval (or a moratorium, if needed).

"Insolvency resolution through this procedure will be available for CDs with such asset size as notified by the central government. Further, the resolution plan approved through this procedure will have the same sanctity as a regular plan approved during the CIRP (Corporate Insolvency Resolution Process)," the notice said.

Another proposal is to expand the pre-packaged insolvency resolution framework t to certain categories of corporate debtors in addition to Micro, Small and Medium Enterprises (MSMEs).