President assent for Ordinance to check backdoor buying back of insolvent firms

President assent for Ordinance to check backdoor buying back of insolvent firms

President Ram Nath Kovind has given his assent to the Ordinance to amend the Insolvency and Bankruptcy Code, 2016, to prevent wilful defaulters from buying back their stressed assets.

The Ordinance amends sections 2, 5, 25, 30, 35 and 240 of the Code, and inserts new sections 29A and 235A in the Code. "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," an official release said on Thursday.

The Ordinance follows instances of the possibility of promoters wresting back control of a company under the insolvency process, prompting the banks to urge the government to fix the criteria for promoters, who want to bid for taking a company that has declared itself insolvent.

In addition to putting in place restrictions for such persons to participate in the resolution or liquidation process, the amendment also provides such check by specifying that the Committee of Creditors ensure the viability and feasibility of the resolution plan before approving it.

"The Ordinance aims at putting in place safeguards to prevent unscrupulous, undesirable persons from misusing or vitiating the provisions of the Code," the official release said.
It recalled that the Insolvency and Bankruptcy Board of India (IBBI) has also been given additional powers.

Recently, the IBBI regulations were amended recently to ensure that information on the antecedent of the applicant submitting the resolution plan along with information on the preferential, undervalued or fraudulent transactions are placed before the Committee of Creditors in order for it to take an informed decision on the matter.

Along with other steps towards improving compliance, the release said, actions against defaulting companies to prevent misuse of corporate structures for diversion of funds, reforms in the banking sector, weeding out of unscrupulous elements from the resolution process is part of ongoing reforms of the government.

These would help strengthen the formal economy and encourage honest businesses and budding entrepreneurs to work in a trustworthy, predictable regulatory environment, it added.