Changes in IBBI norms to prevent backdoor entry of ex-promoters in cos under liquidation: Experts


PTI, Jan 12, 2020, 3:24 PM IST

New Delhi: The amendments in the IBBI regulations will prevent the backdoor entry of former promoters in companies under liquidation by covering the “loopholes” in the law and are in line with the objective of the Insolvency and Bankruptcy Code (IBC), experts said.

The Insolvency and Bankruptcy Board of India (IBBI) has amended the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 and the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016.

Under the amendments introduced to the liquidation process regulations, persons who were ineligible are now barred from being part of any compromise or arrangement at the stage of liquidation.

Furthermore, a secured creditor who chooses to sell secured assets independently also cannot sell the same to a person who is ineligible under the IBC.

“This has been introduced to specifically overrule the decisions passed by some NCLTs, whereby it was held that no bar operated on the sale of secured assets to the ex-promoters of the Corporate Debtor if such sale is carried out by a secured creditor under Section 52 of the IBC,” said Punit Dutt Tyagi, Executive Partner, Lakshmikumaran and Sridharan Attorneys.

Rachit Sharma, DGM, Taxmann said the new amendment to IBC norms restricts secured creditors from selling or transferring assets of a liquidating – company to any person who is not eligible to submit an insolvency resolution plan.

“With the new amendment, the legislature has not left any loophole which could allow the ex-promoters and other ineligible persons to buy the stressed asset or even participate in a scheme of the arrangement,” he said.

According to him, the lawmakers’ intent are very clear, not only does the law bar the ex-promoters from participation under the Code, but it now goes on to bar sale outside the liquidation process also.

The amendment is in line with the intent of the Section 29A of Code preventing any sort of re-entry of ex-promoters at any point of resolution/liquidation process, he said.

Another legal expert, L Viswanathan, Partner, Cyril Amarchand Mangaldas, said the changes in the regulations “is in line with the objective of the IBC” to disallow persons who are disqualified from submitting a resolution plan from re-acquiring the company through the mechanism of a scheme or in enforcement of security interests by secured creditors.

In fact, the amendment goes further to provide that such persons “shall not be a party in any manner to such compromise or arrangement thereby even possibly disenfranchising such persons also from being eligible to vote as members on any scheme of compromise or arrangement”, Viswanathan said.

Mehul Bheda, Partner, Dhruva Advisors LLP was of the opinion that the amendments have been introduced to bring liquidation on par with the resolution process.

The restrictions placed on the promoters under Section 29A of the code are now equally applicable to liquidation.

“This means that no promoter, who is barred from the resolution process, can make a backdoor entry by buying the assets of the company under liquidation or even participating in a scheme of arrangement under Section 230,” Bheda added.

The IBC is the bankruptcy law which seeks to consolidate the existing framework by creating a single law for insolvency and bankruptcy.

Udayavani is now on Telegram. Click here to join our channel and stay updated with the latest news.

Top News

India to be fastest growing economy this yr: Govt source

Man who assaulted, robbed woman arrested by Kundapur Rural Police

KMF employee is ‘public servant’, can be tried under Prevention of Corruption Act: HC

100 mn doses of Corbevax supplied to Centre: Biological E Ltd

Stringent action against hospitals avoiding admission of Covid patients: Min Dr. Sudhakar

K’taka HC quashes formation of Anti-Corruption Bureau, shifts all cases to Lokayukta

No organisations are allowed to hoist National flag at Idgah maidan: Govt


Related Articles More

India to be fastest growing economy this yr: Govt source

RBI cancels the licence of Pune’s Rupee Co-operative Bank

Sensex rallies 580 over pts in early trade; Nifty tops 17,650

Elon Musk sells $7B in Tesla shares ahead of Twitter fight

RBI issues strict norms for digital lending to curb malpractice

MUST WATCH

Kerala: A man in Malappuram protested against potholes on roads in a unique way by bathing & performing yoga in a water

NEWS BULLETIN AUGUST 11

Chikkamagaluru SP Akshay Felicitation

NEWS BULLETIN 10-08-2022

ADGP Alok kumar Statement about Pravin Nettaru case


Latest Additions

India to be fastest growing economy this yr: Govt source

Man who assaulted, robbed woman arrested by Kundapur Rural Police

KMF employee is ‘public servant’, can be tried under Prevention of Corruption Act: HC

Punjab CM accepts resignation of Baba Farid medical varsity VC

Your energy is infectious: PM Modi writes to Naidu

Thanks for visiting Udayavani

You seem to have an Ad Blocker on.
To continue reading, please turn it off or whitelist Udayavani.