Report of the 2nd Insolvency Law Committee and Insolvency and Bankruptcy Code (Amendment Act), 2020
Facilitating resolutions by protecting resolution applicants from past criminal liabilities and preventing termination of critical supplies to the corporate debtor
In November 2017, the Government had constituted the Insolvency Law Committee to make recommendations for ironing-out the initial implementation issues under the Insolvency and Bankruptcy Code, 2016 (Code). Subsequently, in March 2019, the Insolvency Law Committee was reconstituted as a standing committee for reviewing the implementation of the Code on an on-going basis and making suitable recommendations to enhance its effectiveness and efficiency.
The reconstituted Insolvency Law Committee, released its report in February 2020 and suggested further amendments to the Code, many of which were implemented through the Insolvency and Bankruptcy Code (Amendment) Act, 2020 (‘Amendment Act’).
Some of the important changes brought out by the Amendment Act are as follows:
(i) It introduces a minimum threshold for initiation of the Corporate Insolvency Resolution Process (CIRP) by creditors belonging to a large class of creditors (such as classes of homebuyers and deposit-holders): an application for initiation of CIRP by such a creditor is required to be jointly filed with at least a hundred other such creditors or 10% of the total number of creditors in that class, whichever is less. In case of home-buyers, this threshold is calculated on the basis of the total number of homebuyers that are part of the same real estate project.
(ii) It prohibits the termination or suspension of government licences, permits, concessions etc., during a period of moratorium, merely on the grounds of insolvency, provided that the current dues arising out of the use of such licences, permits, concessions are paid during the moratorium.
(iii) It empowers the resolution professional to mandate the continuation of supply of goods and services that are critical for running the business of the corporate debtor, during a CIRP.
(iv) It introduces a new provision that is aimed at protecting a corporate debtor that is successfully resolved during a CIRP and is taken over by a third-party resolution applicant, from being held liable for offences committed by the erstwhile management of the corporate debtor.