IBC Committee Report: Home buyers as financial creditors, voting threshold at 66% and more

The 14-member Insolvency Law Reforms Committee, which was established in December, 2017 has come out with a 106-page report recommending amendments to the Insolvency and Bankruptcy Code, 2016 (IBC)..The Committee was chaired by Ministry of Corporate Affairs (MCA) Chairman, Injeti Srinivas with members from the legal fraternity as well, including Shardul Shroff of Shardul Amarchand Mangaldas and Bahram Vakil of AZB & Partners..Some of the recommendations made in the Report are as follows:.1. Home buyers should be treated as financial creditors “owing to the unique nature of financing in real estate projects and the treatment of home buyers by the Supreme Court in ongoing cases.”.2. Further legitimising the circular issued by the MCA in October 2017, the Committee has proposed that the IBC be amended to provide that any action required to be done under the resolution plan will deemed to have the requisite shareholder approval..3. For the “assets of guarantors”, it has been recommended to clarify by way of an explanation in Section 14 of the IBC that all assets of such guarantors to the corporate debtor shall be outside scope of moratorium imposed under the IBC..4. The Committee in its report has acknowledged the large number of financial creditors who may be in the form of debenture holders and fixed deposit holder. While recognising their rights as financial creditors, the Committee has also recorded the practical difficulties of their inclusion in the resolution process..The Committee has therefore recommended that such security holders be represented through an appointed representative in the creditor meetings..5. Another big question which has been the cause of concern is the (timely) grant of various statutory approvals. It has been proposed by the Committee to allow one year time to obtain necessary statutory clearances from Central, State and other authorities or such time as specified in the relevant law..6. The Committee has also recommended to allow the Central Government to exempt Micro, Small & Medium Enterprises from application of certain provisions of the IBC..7. Thresholds for receiving creditors’ approval are also being proposed to be reduced. For approval of resolution plan, extension of resolution period beyond 180 days, replacement/ appointment of resolution professional, passing of resolution for liquidation, the new recommended threshold is 66%. Other routine decisions, it has been suggested, may be done with 51% vote..8. Further, change in language of the controversial Section 29A, which was inserted by the way of the Insolvency Amendment Act, 2018, has been suggested- to address the problem of unintended exclusions and widen the pool of resolution applicants. A special exemption for financial entities has also been carved out here..9. Another recommendation, “in order to keep frivolous applications at bay”, is to increase the threshold for initiating corporate insolvency resolution process from Rs. 1 lakh to Rs. 10 lakh and for personal insolvency resolution process, from Rs. 1,000 to Rs. 10,000..10. Another important feature that the Committee is recommended resonates with the Supreme Court’s rulings under Article 142. The Committee unanimously agreed that the relevant rules may be amended to provide for withdrawal post admission if the creditors committee approves of such action by a voting share of 90%..(Read the Report).Image taken from here.