The Ministry of Corporate Affairs (MCA) has proposed sweeping changes to the Insolvency and Bankruptcy Code, 2016 to bring more technology, transparency, and speediness to the corporate insolvency resolution process. The draft proposal gives more power to adjudicating authority, allows mandatory admission of insolvency applications filed by financial creditors (FCs), seeks specialised framework for real estate providing major relief to allottees, and looks at expanding the scope of pre-packaged insolvency scheme beyond MSMEs. 

The government has also suggested the Code may be amended to segregate the concept of the resolution plan from the manner of distribution of proceeds received from the successful resolution applicant. In a bid to make the process fairer, a new mechanism for an equitable scheme of distribution of proceeds is proposed through which creditors will receive proceeds up to the liquidation value of the company based on the waterfall mechanism. Thereafter, all surplus will then be distributed among creditors based on the ratio of their unsatisfied claims. Any further surplus shall be distributed among shareholders and partners of the company.

It also proposed a state-of-the-art e-platform for a case management system, automated processes to file applications, delivery of notices, enabling interaction of insolvency professionals with stakeholders, storage of records of corporate debtors undergoing the process, and incentivising participation of other market players in the IBC ecosystem. In order to discourage frivolous or vexatious applications, the draft proposal looks to give AAs the power to impose penalties. The MCA has observed that several proceedings are maliciously instituted before the AA to delay the conduct of processes. The minimum penalty, it is proposed, should not be less than Rs 1 lakh per day, which may mount to three times the loss caused or unlawful gain, whichever is higher.

Public comments may be submitted by 07.02.2023.

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