On 23rd May 2018, the Union Cabinet approved an ordinance to amend the Insolvency & Bankruptcy code (IBC), 2016. The ordinance will come into force on 23rd November 2018.
This is the second ordinance to make changes to the IBC code. The first ordinance was passed in November 2017. It barred wilful defaulters and the people associated with defaulting firms (promoters etc.) from participating in the insolvency process.T
The three major amendments in the second ordinance are-
Homebuyers will be given the status of financial creditors.
It implies that if you give money to a builder to buy a house, it will be treated as lending. And you (homebuyer) will be treated as a financial creditor, that is, on par with banks.
Thus, in case of bankruptcy of the builder, the homebuyers will get priority for recovery of dues. The homebuyers will also be represented in the committee of creditors. This will make them a part of the decision-making process.
It will also enable homebuyers (either as an individual or group) to initiate insolvency proceedings against errant builders.
The voting requirement of creditors have been changed
The committee of creditors must reach on an agreement for taking decisions related to resolution and liquidation. The current requirement of votes is 75 % of financial creditors should agree to reach a decision. It has been relaxed to 66% for critical decision and 51 % for routine decisions.
This has been done to encourage resolution instead of liquidation.
MSMEs who are not wilful defaulter can bid for their companies
Currently, the promoter cannot bid for his own firm in the insolvency resolution process. This amendment allows the promoter of an MSME (Micro, Small & Medium Enterprises) to bid for his firm if the following two conditions are satisfied:
- The firm/ person is not a wilful defaulter
- The firm person is not disqualified for any other reason
The amendment provides relief to micro, small and medium enterprises (MSME). It will also enable better recovery for the creditors as there is not much interest in the MSMEs from the bidders