NEW DELHI: The Cabinet decision recently effecting certain key changes in the Insolvency and Bankruptcy Code (IBC) has ensured the pre-eminence of financial creditors over that of operational creditors with regard to recoveries.
The move has also restricted the resolution process to 330 days, including time for litigation.
The new changes have sought to address the ambiguities that had arisen following a recent ruling by the National Company Law Appellate Tribunal (NCLAT) in the Essar Steel resolution case.
Homebuyers have also been given a stronger voice in the bankruptcy resolution plans of developers that have failed to deliver projects.
The amendments will need to be approved by Parliament. Among the seven amendments approved by the cabinet during its meeting, a key change retroactively clarifies an IBC provision to put the committee of creditors (CoC) in ‘driver’s seat’.
CoC to hold the key
The CoC will have the power to take commercial decisions on distribution of funds to various classes of creditors. Operational and unsecured financial creditors need not be treated on par with secured financial creditors. The “cabinet has approved changes to the IBC,” information and broadcasting minister Prakash Javadekar said while briefing on the key decisions.
The NCLAT had modified the Rs42,000 crore ArcelorMittal resolution plan for Essar Steel to treat various classes of creditors equally, providing for 60.7 per cent recovery of claims for all. That prompted the government to push for quick changes to ensure that the spirit of the critical reform programme wasn’t undermined.
“We feel the order passed by the NCLAT is not in accordance with the provisions of the law,” said a government official.
The order has been challenged in the Supreme Court by Essar Steel’s financial creditors, which had been set to recover around 92 per cent of their claims under the resolution plan that had been approved by the National Company Law Tribunal (NCLT).