Changes to the Insolvency and Bankruptcy Code That May Accelerate Settlement

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Budget 2022 expectations: The Union budget session is expected to start on Jan. 31 and Union Finance Minister Nirmala Sitharaman will present the budget on Feb. 1, the Parliamentary Affairs Ministry said in a statement on Friday, Jan. 14. This year, among many other key decisions, the government is likely to pass the amendment to the Insolvency and Bankruptcy Code amid calls from MSMEs to make the case. According to reports, the IBC is set to see a boost, where measures to speed up case resolution will be taken alongside a cross-border insolvency framework. This comes as Indian micro, small and medium enterprises have been facing problems for more than five years now.

The MSME sector in India has its list of demands ready and the Federation of Indian Micro, Small and Medium Enterprises (FISME) has called on the government to amend the IBC. Based on this, the Indian government invited the public to comment on the implementation of the changes in the legislation.

“The Government of India has invited public comment on certain amendments made to the IBC, 2016 (“Code”) with a view to making the Code robust. This includes reliance on records available from information services to establish financial debt prescribed classes of financial debtors,” said Yashojit Mitra, Partner at Economic Laws Practice.

He also said the government had invited discussions on “regulating avoidable transactions and facilitating cooperation with the PR/liquidator to enable him to investigate such transactions; and giving creditors the power to ask the arbitration authority to investigate avoidable transactions, in certain cases.”

Mitra added that the government is expected to amend the legislation to allow for a speedy resolution of insolvency proceedings. “The MSME sector has also asked to be prioritized as operational creditors in the Code itself. Accordingly, we expect one of the budget’s focus areas will be to address the timeliness of insolvency proceedings,” he said.

“Additionally, given the third wave in the country and the covid restrictions in several states, the budget should also ensure that the Code can be used wisely to reduce stress and be a tool to revive affected businesses,” said added Mitra.

According to a report by the Economic Times, the government will also put in place a code of conduct for the Committee of Creditors (CoC), which makes decisions on proposals for insolvency resolutions. The report also quotes a government official as saying they received responses received from Alabama bankruptcy stakeholders and a standing committee of parliament. “With all relevant opinions included, we are now in a better position to formulate the settlement,” the person told ET.

Officials said the Department of Enterprise will roll out the changes from next fiscal year with “certain guarantees”.

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