Insolvency Law likely to see 2 key tweaks, Legal News, ET LegalWorld – Legal Firms


The Insolvency and Bankruptcy Board of India (IBBI) is set to propose two key amendments to the law governing bankruptcies to enable quicker debt resolutions and distribution of recovery proceeds despite continuation of litigation.

At this weekend’s unusual closed-door brainstorming sessions, stakeholders agreed that banks must be allowed to restart a resolution plan in case a successful resolution applicant backs off.

IBBI To Seek Comments
There was also agreement to permit distribution of proceeds from recovery even if there is pending litigation in the case, top banking sources told ET.

The meeting was attended by bank executives, lawyers, consultants, officials from the finance ministry, the IBBI and even from the prime minister’s office (PMO).

“The finance minister addressed the gathering following which there were frank discussions with different groups that were formed,” said a person who attended the sessions. “Two points to emerge clearly were the need to amend the law to allow banks more flexibility in case a bidder pulls out, and to allow distribution of proceeds even if there is pending litigation.”

Suggestions from these sessions will now be circulated among a wider audience for comments, and based on the response, the IBBI will send in its inputs to the government to start the process of amending the Act, people familiar with the process said. IBBI officials could not be immediately reached for comments.

To be sure, there have been previous instances where banks have gone back to the drawing board and found a new buyer when a successful applicant has withdrawn. Legally speaking, such a move is not in accordance with the law that says the account has to go into liquidation in such cases.

Amending the law to make it a part of the Act will ensure that there is no ambiguity.

Similarly, there have been instances when banks have sought court approvals to distribute the proceeds from a sale even though there is some pending litigation. However, making it a part of the law will strengthen creditors’ hands, people familiar with the discussions said.


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