|
Key change proposed
|
Likely impact
|
|
Inclusion of merger, demerger in resolution plan
Resolution plan can include comprehensive corporate restructuring schemes such as merger, amalgamation and demerger.
|
The amendment aims to allow resolution applicants to propose a dynamic resolution plan including merger, demerger, amalgamation, etc. This explicitly clarifies that once such a resolution plan is approved by the NCLT, there will not be a need to follow separate process for giving effect to merger, demerger, etc, resulting in saving of time and procedural efforts.
|
|
Completion timeline
Deadline for completion of Insolvency Resolution Process within an overall limit of 330 days including litigation and other judicial processes.
|
This is one of the major changes. The Code currently allows a maximum of 270 days for clearing a resolution plan. However, due to litigation at various stages and on different counts, there have been challenges in completing the entire process in a time bound manner. This has in some way impacted the relevance of the Code.
Now, the amendment seeks to have an overall timeline of 330 days for completing the entire process including any litigation. Also, as onetime exercise timeline of 90 days has been prescribed for completion of the insolvency process in respect of ongoing cases where 330 days are already over.
These amendments would ensure timebound resolution (for existing as well as new cases), thereby restoring confidence of the stakeholders in the process.
In the cases where 330 days from the date of insolvency commencement date are not yet completed may be required to be completed within that period. It may be tough in some of those situations to adhere to the timelines.
|
|
Voting by authorised representative who is representing more than one financial creditor
It is proposed that an authorised representative representing more than one financial creditor need to vote on behalf of all such represented financial creditor basis the decision taken by more than 50% of the voting share of such financial creditors who have cast their vote.
|
This would facilitate decision making process in committee of creditors especially when financials creditors are large and heterogeneous group.
|
|
Payment to dissenting financial creditors and operational creditors
It is provided that as per resolution plan, the financial creditors who have not voted in favor of the resolution plan shall receive at least equal to the liquidation value of their debt i.e. amount that would have been received if the liquidation value of the corporate debtor had been distributed in accordance the water-fall mechanism prescribed under section 53 of the Code.
Similarly, it is also provided that as per resolution plan, the operational creditors shall receive higher of the following:
- Amount that would have been received by them if the amount to be distributed under the resolution plan had been distributed in accordance with liquidation water-fall mechanism prescribed under section 53 of the Code or
- Amount that would have been received if the liquidation value of the corporate debtor had been distributed in accordance the said water-fall mechanism
Further, the above provisions will also apply to resolution plans which have not attained finality, or which are pending in appeals.
|
This amendment clarifies about the rights of dissenting financial as well as operational creditors. The amendment proposes that they be paid as per their liquidation hierarchy specified in the Code, thereby ensuring that they receive minimum of value which they would have otherwise received in case of liquidation.
Further, the amendment also introduces the concept of ‘fair and equitable’ distribution in the resolution plan to the operational creditors and dissenting financials creditors.
Further, since these amendments are applicable even to open resolution plans / under litigation cases, it provides a definitive mechanism to compensate dissenting financial creditors and operational creditors. At the same time, in respect of such open plans / cases, it may now be necessary to re-draw the distribution mechanism before it is being finalised so that it meets the requirements of these amendments.
|
|
Power of committee of creditors in the manner of distribution proposed in resolution plan
The committee of creditors is empowered to approve the distribution mechanism proposed in resolution plan taking into consideration the order of priority amongst creditors (as laid down in water-fall mechanism under Section 53 of the Code) as well as value of security interest of the secured creditor.
|
This amendment demonstrates that the committee of creditors is empowered to deal with commercial aspects involving manner of distributions proposed in the resolution plan after taking into consideration the liquidation water-fall mechanism.
|
|
Binding nature of NCLT approved resolution plan on all stakeholders including Government
It is now clarified that resolution plan once approved by NCLT shall be binding on all stakeholders including the Central Government, any State Government or local authority to whom a debt in respect of the payment of the dues arising under any law such as authorities to whom statutory dues are owed including tax authorities.
|
The amendment brings clarity that the Government is also one of the stakeholders and any waivers/reliefs claimed in the resolution plan and approved by NCLT shall be binding on all such authorities. There were instances of authorities insisting on separate processes to be followed or according different treatment on litigated demands, albeit specific waiver / reliefs sought.
However, the amendment does not specifically cover other areas like contingent liabilities incl compensation to the workmen etc. which may arise in future. These may be with reference to old disputes and/or on account of actions undertaken to execute the approved resolution plan.
|
|
Liquidation
It is now proposed that the committee of creditors may take the decision to liquidate the corporate debtor any time after the constitution of the committee of creditors until the confirmation of the resolution plan, including at any time before the preparation of the Information Memorandum.
|
This amendment provides flexibility to the committee of creditors to take the corporate debtor into liquidation where they believe liquidation is a better / only option, without undertaking the detailed process of inviting bids, etc. This would help in saving time and effort in certain cases resulting in speedy closure.
|