The Union Cabinet has approved an ordinance to incorporate new amendments to the Insolvency and Bankruptcy Code (IBC). These new amendments have relaxed the bidding process involving micro, small, and medium businesses. Also, the new amendment helps homeowners by enabling them to become more involved in the debt resolution plan of defaulting real estate developers.
The earlier amendment incorporated to the IBC prevented many companies from participating in the bidding process. The mainly included companies that have non-performing assets to their name. The new amendment eased the process for micro, small, and medium business (MSMEs) with non-performing assets by allowing them to bid on their stressed assets. Only promoters who are proven to be wilful defaulters are now prevented from entering the bidding process.
One of the reasons for this change was that there is very little interest in these stressed assets outside of MSMEs. This change is expected to make the debt resolution process faster. One of the proposals of the ordinance involves streamlining eligibility provisions to reduce disputes in the bidding process. The ordinance proposes streamlining the eligibility provisions to remove the grey areas in the current process.
The voting threshold of the resolution process was lowered under the newly proposed ordinance. At present, a resolution plan has to be approved by at least 75% of the creditors. Under the new amendment, it is now enough to get approval from 66% of the creditors.
The ordinance also proposes to include home buyers in the default resolution process by classifying them as ‘financial creditors’. This will enable home buyers to get representation on the committee of creditors and get quick refunds from defaulting real estate companies.
A few days ago, the first major success of the IBC was witnessed with the acquisition of Bhushan Steel by Tata Steel. This move is expected to reduce the non-performing assets of public sector banks by about Rs.35,000 crore. Swift debt resolution process created by the IBC framework was credited behind the success of this insolvency proceeding.