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Cabinet clears more amendments to IBC; to ring fence successful bidders from risks

The Insolvency and Bankruptcy Code (IBC), which came into force in 2016, has already been amended thrice.

ET Bureau|
Updated: Dec 12, 2019, 07.12 AM IST
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BCCL
Insolvency Law
The IBC (Second Amendment) Bill, 2019, seeks to change various sections as well as insert a new section in the law.
NEW DELHI: The cabinet approved amendments to the Insolvency and Bankruptcy Code (IBC) to protect successful resolution applicants from criminal proceedings against offences committed by previous managements or promoters.

It also lowered the rating threshold for public sector banks to purchase high-rated pooled assets to BBB+ from “financially sound” nonbanking finance companies (NBFCs) and housing finance companies (HFCs) under the partial credit guarantee (PCG) scheme. Lowering the limit from AA will make more NBFCs and HFCs eligible for funds from banks.

MONETISING ROAD PROJECTS
It also approved the National Highways Authority of India (NHAI) plan to set up an Infrastructure Investment Trust (InvIT) and monetise road projects. This will help speed up monetisation of working assets and attract more funds to the sector.

IBC AMENDMENTS
Ring-fencing successful bidders from offences committed by previous managements will speed up the resolution process by giving comfort to buyers of stressed assets.

ET had reported last week that Lakshmi Mittal’s ArcelorMittal, which has successfully bid for Essar Steel through the insolvency process, had sought immunity from any future investigations pertaining to the company and its erstwhile promoters, the Ruia family.

The changes will help the Rs 42,000-crore resolution offered by ArcelorMittal to go through. Worries on this count had risen after the Enforcement Directorate had attached assets worth Rs 4,000 crore in Odisha of Bhushan Power and Steel Ltd, a company undergoing insolvency resolution, in a case related to the alleged diversion of bank funds. This has delayed a Rs 19,700 crore insolvency resolution plan proposed by JSW Steel. Proposed changes will ensure investigations do not stall insolvency resolution.

Other amendments include measures to ensure that corporate debtors undergoing resolution continue as going concerns. Licences, permits, concessions, clearances etc. cannot be terminated, suspended or not renewed during the moratorium period.

They also propose a threshold for financial creditors to prevent frivolous triggering of corporate insolvency, ensuring that bankruptcy isn’t invoked for small amounts.

Amendments are expected to be introduced in the ongoing session of Parliament.

Changes are being made to streamline the corporate insolvency resolution process (CIRP) and protection of lastmile funding, in a move that will help sectors such as real estate and infrastructure.

Experts say these amendments were badly needed. They will remove hurdles in the way of speedy resolution and also attract bidders. “Preservation of licences, permits, quotas etc, which are core to the business of insolvent companies, and ensuring that no criminal action can be taken for past violations of resolved companies, will make resolution easier and will also increase the realisation for all stakeholders,” said Manoj Kumar, partner and head, M&A and transactions, Corporate Professionals.

RELIEF FOR NBFCS, HFCS
Lowering of rating threshold will provide significant relief to liquidity-starved NBFCs and HFCs and follows representations from them and banks. Not much disbursement has happened under the PCG mechanism because of the high threshold.

The move will help otherwise solvent NBFCs or HFCs avoid the distress sale of assets.

“The proposed government guarantee support and resultant pool buyouts will help address NBFCs/HFCs resolve temporary liquidity or cash flow mismatch issues, and enable them to continue contributing to credit creation and providing last-mile lending to borrowers, spurring economic growth,” the government said in a release.

The move will also protect the financial system from any “adverse contagion effect” that may arise due to the failure of such entities, the government added. The scheme will remain open until June 30, 2020, or till assets worth Rs 1 lakh crore are bought. The finance minister has been empowered to extend the scheme by three months.

NHAI INVIT
Setting up an InvIT will allow the NHAI to monetise completed national highways. This will help keep the road-building effort going in view of the funds crunch and lack of private investment.

Highway projects will be bundled to form special purpose vehicles (SPVs) to be offered to investors. The SPV will then be traded on stock exchanges and returns will be linked to the InvIT’s performance in capital market.

InvIT as an instrument provides flexibility and is expected to create specialised O&M concessionaires and attract patient capital of around 30 years, the official statement said. “Retail domestic savings and corpus of special institutions to be invested in infrastructure sector through InvIT,” the statement added.

IIFCL EQUITY SUPPORT
The cabinet also approved a proposal to increase equity support to India Infrastructure Finance Co Ltd (IIFCL) of Rs 5,300 crore in the current financial year and Rs 10,000 crore in FY21, a move that will allow the company to finance big-ticket infrastructure projects. The cabinet has also approved increasing the authorised capital of IIFCL from Rs 6,000 crore to Rs 25,000 crore.

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