The PMO and the law ministry have accepted all the key proposals of insolvency law panel and the cabinet is likely to take up those on Wednesday. The recommendations, if approved by the cabinet, will pave the way for out-of-court settlement of bad loans if 90 per cent of lenders support such a move.

The panel has also proposed relaxing bidders’ eligibility criteria. Under the new norms, the debarred list of bidders would include only those who have been accomplices with promoters for grabbing control of the company and creating non-performing assets (NPA).

The draft has already been cleared by the law ministry and the PMO, sources said, adding that changes will be applicable for new cases and not the current ones before National Company Law Tribunal (NCLAT) unless new bids are submitted after the lapse of existing resolution plan within 180 days. Then such cases with revised bids would be treated as new cases and amended norms will be applicable.

The Insolvency and Bankruptcy Code (IBC) at present under Section 29 (A) debars related parties and connected persons of defaulting entities from bidding for a company. After the amendments, only parties closely related to defaulting promoters will be debarred. Persons who enter into any backdoor arrangement with corporate debtors formally or informally, directly or indirectly, will also be barred after changes in IBC. They will be brought within the scope definition of connected persons.

The panel has also recommended retaining the 270-day deadline for resolution of insolvent companies after case has been admitted by NCLT. There were demands for relaxation since the litigation initiated by various parties comes in the way of restructuring a company, getting a resolution plan up to a working level and delaying the process.

Recently, the finance ministry had favoured an idea of extension of this moratorium period to another 180 days over and above the 180 days of pre-NCLT approach, effectively making a resolution process to one-year period. According to IBC norms, restructuring a company has to conclude within 180 days after an insolvency case has been admitted by the NCLT.
This deadline can be extended by 90 days, after which no more extensions are permitted.

The amendments to IBC would also include financial institutions like private equity investors and NBFCs being treated at par with bankers if they wish to participate in any resolutions process.

On the out-of-court settlement, the IBC in its present form does not provide for any out-of-court settlement. Only NCLT can allow outside settlements subject to agreement of debtors and creditors. This gap was left to interpretation when UltraTech suddenly appeared for Binani Cement after Bharat Dalmia had won the bid.

The same goes for Bhusan Power & Steel. The recent order by NCLT Delhi in the Bhushan Power & Steel case admitting a bid after completion of the bidding date, has made the case stronger for UltraTech Cement, which lost out to Dalmia Bharat Cement in the race for acquisition of the hitherto bankrupt Binani Cement.

The Delhi bench of NCLT on Monday allowed the bid from Liberty House for acquisition of Bhushan Power & Steel despite Liberty House filing its bid after closure of the bidding process and its CoC choosing Tata Steel as the H1 bidder.

The new IBC changes would also have a new set of rules on passage of resolution plans within the CoC. The government has accepted the proposals that for the passage of the resolution plan a reduced threshold of voting for approving critical decisions from 75 per cent to 66 per cent. Those critical decisions include extending the deadline for restructuring beyond 180 days, replacing resolution professionals, approving resolution plan, and approving liquidation. In other matters, 51 per cent of the votes is required. #casansaar