The Insolvency and Bankruptcy (Second Amendment) Act, 2018 was notified on 17-08-2018 after receiving the President’s assent on the same day, w.e.f. 06-06-2018. It amends the Insolvency and Bankruptcy Code (IBC) that provide relief to home buyers who, as financial creditors, will be able to decide the future of defaulting builders alongside their lenders. The IBC amendment also makes it easier for banks to agree on salvaging a failed firm from being wound up by lowering the votes needed for taking critical decisions to 66% from 75%. It further seeks to replace the 06-06-2018 ordinance that sought to put these provisions into force to aid quick resolution of several bankrupt firms.
The Amendment Act introduces a new provision that was not part of the Ordinance — lenders deciding on a corporate rescue plan have to first seek the approval of Competition Commission of India (CCI) before finalizing the scheme. This move is aimed at shortening the time taken for bankruptcy proceedings. The IBC allows a maximum of 270 days for lenders to clear a rescue plan, failing which the defaulting company will go into liquidation. The financial creditor status would help home buyers protect their hard earned savings and the changes in voting requirements are based on global best practices. In the UK, for example, a resolution plan is accepted if 51% of lenders agree. The government decided that some provisions need concessions so that more stressed assets get resolved. Liquidation of companies was the last option and that the intention of the law is to save enterprises wherever possible considering the need for saving jobs. Whether home buyers are secured or unsecured creditors will be decided on a case to case basis by the resolution professional and the courts. The IBC amendments also seek to ensure that provisions enacted in January to bar wilful defaulters and those “acting jointly” with them from bidding for the bankrupt firm do not unfairly disqualify entities like asset reconstruction companies, banks and alternative investment funds.