Insolvency and Bankruptcy Code (Amendment) Ordinance, 2017

Highlights of the Ordinance

• The Ordinance amends the Insolvency and Bankruptcy Code, 2016 to prohibit certain people from submitting a resolution plan (specifying details of restructuring a defaulter’s debt). 
• These persons include:

(i)   wilful defaulters,

(ii)  disqualified directors,

(iii)  promoters or management of the defaulting company, and

(iv)  any person who has committed these activities abroad.

• The Ordinance bars an insolvency professional from selling the property of a defaulter to any such person during liquidation.

Key Issues and Analysis

• The Ordinance prohibits certain persons from submitting resolution plans as it may be considered undesirable to let them take charge of the company.  However, this may reduce competition among applicants seeking to resolve the company and result in lower recoveries for creditors.

What are Insolvency and Bankruptcy?

Insolvency is the situation where the debtor is not in a position to pay back the creditor. For a corporate firm, the signs of this could be a slow-down in sales, missing of payment deadlines etc. Bankruptcy is the legal declaration of Insolvency. So the former is a financial condition and latter is a legal position.

All insolvencies need not lead to bankruptcy.

The new code has a sequential procedure of Insolvency resolution, failing which, it leads to Bankruptcy (following liquidation of assets).