Ordinance aims at putting in place safeguards to prevent unscrupulous persons from misusing the provisions of the Bankruptcy Code.
New Delhi : In a blow to defaulting promoters seeking to reclaim their firms that are under insolvency proceedings, the government on Thursday promulgated an ordinance to bar wilful bank loan defaulters as well as those with NPA accounts from bidding in auctions being done to recover loans.
The ordinance aims at putting in place safeguards to prevent unscrupulous persons from misusing or vitiating the provisions of the Insolvency and Bankruptcy Code (IBC), the Corporate Affairs Ministry said in a statement. The amendments would be applicable to cases where the resolutions are yet to be approved. The amendments to the insolvency law need to be approved by Parliament in its next session which is likely to begin on December 15.
The changes essentially mean that certain promoters would not be allowed to bid for their own assets under the insolvency proceedings initiated to recover overdue loans. In the first phase, as many as 12 companies with over Rs 5,000 crore of overdue loans each, including Bhushan Steel, Essar Steel, Lanco Infratech, Monnet Ispat and Electrosteel, were referred by the RBI for resolution under this law.
In several of these cases, the original promoters themselves are among the bidders.Amid rising concerns that a defaulting promoter could wrest back control of the company that is under insolvency even as banks take a hit on the loans, the government on Wednesday approved promulgating an ordinance to amend the Insolvency and Bankruptcy Code (IBC).
President Ram Nath Kovind has given assent to the ordinance, the Ministry said on Thursday. “The amendments aim to keep out such persons who have wilfully defaulted, are associated with non-performing assets, or are habitually non-compliant and, therefore, are likely to be a risk to successful resolution of insolvency of a company,” it said.
As per the ordinance, those who have their accounts classified as non-performing assets (NPAs) for one year or more and are unable to settle their overdue amounts include interest thereon and charges relating to the account before submission of the resolution plan would be ineligible. Corporates, promoters, holding companies, subsidiaries, and associate companies or related parties undergoing insolvency resolution or liquidation under the IBC would not be eligible for bidding for the stressed assets.
Under the amended code, Committee of Creditors (CoC) has to ensure the viability and feasibility of a resolution plan before approving it.
The CoC should “reject a resolution plan, which is submitted before the commencement of the Ordinance but is yet to be approved”, the statement said.
