Ease of resolution under the Insolvency and Bankruptcy Code

With an intention to amend and change the laws concerning reorganisation and settlement of insolvency, in a time-bound manner, to optimise the values of property, promote innovation, access to credit and to align the interests of various players, the Insolvency and Bankruptcy Code 2016 (code) has been adopted. In order to address inconsistencies and to fine-tune the Code to meet its goals, the Code and its related laws and regulations have been periodically updated.

The Act on Insolvency and Bankruptcy (Amendment) 2019 is the latest update of the Constitution. On 5 August 2019, the President's authorization of the Reform Act was secured. Notified as of 16 August 2019 of the final day of the reform law.

The Code allows for a time-limited insolvency resolution process between companies and individuals. Insolvency means that people or corporations can not repay their outstanding debt.

The code requires the settlement agreement to ensure that operating lenders receive no less than the sum they earn in the event of winding up.  The Bill amends this in order to ensure that the sums payable to the operating lender are higher than the following: (i) liquidation amounts received, and (ii) the amount due according to the resolution plan when these sums are allocated under the same priority order (as for liquidation). For example, if Rs 1,000 crore defaulted and the resolution professionals recovered a Rs 800 Cr, they will have to receive at least a sum if the liquidation process is used to recover Rs 800 crore.

The Bill further states that this clause only extends to cases involving insolvencies: (i) not accepted or rejected by the National Company Law Court (NCLT), (ii) appealed to the National Company Appellate Tribunal or Supreme Court and (iii) where the petition against NCLT's judgements has been brought in any court.

The IRP shall be granted 180 days for a settlement, extendable by 90 days. If the Resolution Process is not settled, the company will be liquidated to pay the lenders.