The changes to the IBC, based on the report of the expert group on insolvency law, will include harsher penalties and punishments for promoters and directors involved in cases of large scale financial irregularities, especially those that are found to have authorised fraudulent transactions.
At present, IBC provides for jail time of up to five years and fines up to Rs 1Crore for individuals who engage in transactions to defraud creditors, falsify accounts of the corporate debtor or make false representations to creditors Individuals found to knowingly engage in transactions with an intent to defraud creditors or the corporate debtor may also be directed to make contributions to the assets corporate debtor. “In our experience, many resolution professionals have filed applications that promoters and directors have engaged in such transactions,” said another government official.
The amendments are also likely to include a resolution process for personal guarantors. Typically, promoters or other related parties stand as guarantee to a corporate debt. Currently, the National Company Law Tribunal (NCLT) only takes up cases of corporate insolvency. The proposed changes will provide a process akin to the existing corporate insolvency resolution process.
“Cases related to insolvency of personal guarantors to a corporate debtor will be heard by the NCLT and if the CIRP for the corporate debtor is going on then it will be taken up by the same bench,” said a government official.
The official also said that extending the scope of the IBC to personal insolvencies including granting a debt waiver through a “fresh start” scheme for individuals with small loans and low levels of income and assets was the next priority for the Insolvency Law Committee.
The government has also formed a committee to look into group insolvency including that in the IBC will take more time since there is a lack of existing frameworks for group insolvency internationally.
The cross-border insolvency framework will be based on UN model law, which is expected to aid creditors enforce their rights over corporate assets of corporate debtors located in other jurisdictions through cooperation between countries. Experts believe that the crossborder insolvency regime will benefit suppliers of capital as well as goods and services. “Many countries have already adopted the model UN insolvency law. It will make is easier for Indian person supplying outside India as well as outside to recover their claims.” said Manoj Kumar, head of M&A and insolvency at law firm corporate professionals. Kumar also said that India’s insolvency regulator, the Insolvency and Bankruptcy Board of India will also have to enter into MoUs with regulators in other countries before creditors can benefit from the new cross-border insolvency framework.