Government mulls reduction in lender approval threshold under IBC

To prevent liquidation of insolvent companies, the government is mulling over lowering the approval threshold to two-thirds majority or even a simple majority for resolution plans under the Insolvency and Bankruptcy Code (IBC).

A report in The Economic Times stated that the government feels liquidation should be the last resort.

Currently, 75 percent of creditors have to agree to a resolution plan indicating that a rejection by 26 percent of the creditors may force a company into liquidation.

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"There is a need to relook at the current majority requirement. Just 26 percent members cannot take a company to liquidation," a senior government official told the paper on condition of anonymity. "We are seeing it as an issue."

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According to Section 30(4) of the IBC, a committee of creditors may approve a resolution plan by a vote of not less than 75 percent of voting share of the financial creditors, however, the Hyderabad bench of the National Company Law Tribunal (NCLT) recently cleared a resolution plan approved by 66.67 percent of the Committee of Creditors.

Sources told the newspaper that the government feels approval of a lower threshold could be provided in the law as liquidation may yield a lower value for assets as well as lead to job losses due to closure.

A year since IBC was introduced, the government is still in the process of fine-tuning resolution procedures, for which it has formed a 14-member IBC law committee to identify issues that may impact efficiency of corporate insolvency resolution.

The committee is scheduled to submit its recommendations before the end of February.

Ministry of Corporate Affairs (MCA) officials  has been holding talking talks with the stakeholders too. The MCA recently met bankers, Chairman and Managing Directors, resolution professionals to discuss delays in approvals, demands for stamp duty exemption for transfer of insolvent companies, and forest clearance among other subjects.

According to the report, an extension of 60 days is likely to be announced soon for completing the bankruptcy resolution process for companies currently under insolvency resolution.

As per the current laws, a maximum 270 days period is allowed for resolution — an initial 180 and 90 days of extra time on top of that.

 

 

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