Changes in IBBI Standards bar re-entry of All ex-promoters in cos under liquidation

The changes from the IBBI regulations will stop backdoor entrance of prior promoters in businesses under liquidation by covering the”loopholes” in the law and are in accord with the aim of the Insolvency and Bankruptcy Code (IBC), specialists said.

The Insolvency and Bankruptcy Board of India (IBBI) has amended the Insolvency and Bankruptcy Board of India (Insolvency Resolution Procedure for Business Persons) Regulations, 2016 along with the Insolvency and Bankruptcy Board of India (Liquidation Procedure ) Regulations, 2016.

Beneath the amendments introduced into the liquidation procedure rules, individuals who have been ineligible are barred from being a part of any compromise or arrangement in the phase of liquidation. What’s more, a secured creditor who chooses to market procured assets independently also cannot sell the exact same to a man who’s ineligible under the IBC.

“It was introduced to specifically overrule the decisions passed by a few NCLTs, where it had been held that no pub functioned on the sale of assets that were secured into the ex-promoters of this Organization Debtor, if such sale is performed by a secured lender under Section 52 of the IBC,” explained PunitDutt Tyagi, Executive Partner, Lakshmikumaran and Sridharan Attorneys.

Rachit Sharma, DGM, Taxmann reported the new change to IBC criteria limits secured creditors from transferring or selling assets of a liquidating – firm to any individual who isn’t qualified to submit an bankruptcy settlement program.

“Together with all the new amendment, the legislature hasn’t left any loophole that could permit the ex-promoters and other ineligible persons to purchase the stressed advantage or perhaps take part in a scheme of arrangement,” he explained.

According to him, the law manufacturers’ intent are extremely evident, not only does the legislation pub the ex-promoters from involvement under the Code, it currently proceeds to pub sale out archery procedure too.

The change is in accord with the intention of this Department 29A of Code preventing any type of re-entry of all ex-promoters at any stage of resolution/liquidation procedure, he explained.

Another legal specialist, L Viswanathan, Partner, Cyril Amarchand Mangaldas, stated the modifications in regulations”is in accord with the aim of this IBC” to disallow persons that are disqualified from filing a settlement strategy from re-acquiring the business through the mechanics of a strategy or at enforcement of security interests by secured lenders.

In reality, the change goes further to provide such persons”won’t be a party in any way to such compromise or arrangement hence potentially disenfranchising such persons too from being qualified to vote members on almost any strategy of compromise or arrangement”, Viswanathan said.

Mehul Bheda, Partner, Dhruva Advisors LLP has been of the view that the alterations are introduced to deliver liquidation on par with all the settlement procedure. The limitations put on the promoters under Section 29Some number of the code are currently equally pertinent to liquidation.

“This usually means no promoter, who’s barred in the settlement process, may earn a backdoor entrance by purchasing the assets of the business under liquidation or perhaps engaging in a scheme of arrangement under Section 230,” Bheda added.

The IBC is the insolvency law that attempts to consolidate the present frame by producing one law for bankruptcy and bankruptcy.

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Sarah Lacy

Sarah Lacy

Sarah Lacy is a reporter covering Amazon. She previously covered tech and transportation, and she broke stories on Uber's finances, self-driving car program, and cultural crisis. Before that, she covered cybersecurity in finance. Sarah's work has appeared in The Wall Street Journal, Bloomberg, Politico, and the Houston Chronicle.
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