The government has recently made amendments to the Insolvency and Bankruptcy Code (IBC). Discuss the key changes being made and what will be the affects ?

The Cabinet has approved changes to the Insolvency and Bankruptcy Code (IBC) for the resolution of defaulting entities.

Key changes – 

• Protection of resolution applicants from criminal proceedings against offences committed by previous managements or promoters.
• It is likely to speed up the resolution process by providing comfort to buyers of stressed assets.
• It has lowered the rating threshold for public sector banks(PSBs) to purchase high-rated pooled assets.
• The rating has been lowered from AA which stands for financially sound to BBB+ which stands for most stressed
• Earlier only AA-rated companies managed to raise money from the market considering their healthy credit rating.
• The relaxation will make more Non-banking finance companies (NBFCs) and HFCs (housing finance companies) eligible for funds from banks.
• Other measures seeks to ensure that corporate debtors undergoing resolution continue as going concerns.
• Permits, licenses, concessions, clearances etc. cannot be terminated, suspended or renewed during the moratorium period.
• It also proposes a threshold for financial creditors to prevent frivolous triggering of corporate insolvency
• It also seeks to ensure that bankruptcy is not invoked for small amounts.

Benefits – 

Changes have been made to streamline the corporate insolvency resolution process (CIRP). It will remove the hurdles in the way of speedy resolution and attract bidders

However, the effectiveness of IBC will depend crucially on the mechanism’s working speed, thus it is essential that these amendments are enacted into law.

Topics: GS-III: Economic Growth Development