The Insolvency and Bankruptcy Code (Amendment) Act, 2020 brought in some changes with respect to the following provisions as stated in the principal Act. These are as follows:
1. Insolvency Commencement Date
Earlier, the insolvency commencement date was commenced from the date when the Insolvency Resolution Professional (IRP) was appointed by the adjudicating authority. However, under the amendments, the same has been clarified to commence when the application for initating the Corporate Insolvency Resolution Process (CIRP) is admitted by the adjudicating authority.
2. Threshold for initiating resolution process by some specific classes of Financial Creditors
Creditors can initiate an insolvency resolution process, if the amount of default by the corporate debtor is at least INR 1,00,000/- (Rupees One Lakh Only).
Now, an additional requirement has been added for certain classes of financial creditors for filing of an application including:
- Real estate allottees
- Security or Deposit holders represented by a trustee or agent.
- Financial Creditors referred to in section 7(6A) clause (a) and (b)
The Amendment Act specifies the minimum threshold for these classes of financial creditors for initiating insolvency resolution process, which must be atleast 10% of the creditors, or 100 creditors of the same class, whichever is less.
3. Corporate debtors entitled to make application
With the enforcement of the Act, the Corporate Debtor [as referred to in clauses (a) to (d) of Section 11] now has the power to initiate CIRP against other corporate debtors.
4. Liabilities for Prior Offences
The Act safeguards the successful bidders of insolvent companies from the risk of criminal proceedings for offences committed either by the erstwhile promoters of the corporate debtor or by any other person involved with the corporate debtor. Further, the Act also provides immunity to the company from attachment, seizure, retention, or confiscation of their property in relation to such offences. This is done with the intention of encouraging entreprenuership in the country.
5. Licenses and Permits not to be terminated due to Insolvency
During the insolvency resolution process, a licence, permit, registration, quota, concession, clearances or a similar grant or right will now not be terminated or suspended. However, this shall not be applicable to any type of termination or suspension prior to the commencement of the CIRP.
Also, where the IRP or RP considers beneficial for keeping the corporate debtor afloat, the supply of goods and services will not be terminated. This is done in order to create a balance for the rights of suppliers.
6. Power to make regulations under Section 14 (2A)
The Insolvency and Bankruptcy Board of India (IBBI) can make regulations with regard to the circumstances in which supply of critical goods or services may be terminated, suspended or interrupted during the period of moratorium under sub-section (2A) of section 14 of the Code.
7. Appointment of IRP [Section 16]
Earlier it was stated that the IRP shall be appointed within 14 days of the commencement of the insolvency resolution process. However, now the appointment shall be made ‘on the insolvency commencement date’ i.e. the date of appointment of the IRP and the date of commencement of the CIRP would be the same.
10. Insolvency Proceedings against Financial Service Providers
Due to the Amendment, the Central Government can now notify the categories of financial service poviders against whom insolvency and liquidation proceedings can be initiated. These proceedings may be conducted with modifications or in the manner prescribed by the Central Government. This will not be affected by anything contrary to the provisions of the Code
11. Role of Resolution Professional
The RP wil have to manage the affairs of the Company until:
- The resolution plan is approved under section 31(1) of the Code
- Liquidator is appointed by adjudicating authority as per section 34.
12. Persons not eligible to become Resolution Applicants
The scope of Related Party Transactions has been widened, under:
- Explanation I (second proviso) of clause (c)
- Explanation I of clause (j).