The Union Cabinet has approved amendments to the Insolvency and Bankruptcy Code (IBC) along with changes to the Companies Act and the Limited Liability Partnership (LLP) Act, incorporating most recommendations of a parliamentary select committee, according to official sources. The proposed reforms aim to speed up insolvency resolution, introduce cross-border insolvency provisions and ease compliance requirements for businesses to improve the ease of doing business in India.

The IBC Bill had been tabled by the corporate affairs ministry in August last year. Then it was referred to the select committee of Parliament. The MCA, it is learnt, has accepted most of the suggestions made by the committee and incorporated them in the Bill. 

Changes to the Companies Act and LLP Act, sources said, focus on easing processes and the compliance burden on businesses.

In both Acts, various forms have proposed for rationalisation, alongside more action on decriminalisation for greater ease of doing business. 

Union Finance Minister Nirmala Sitharaman had earlier said the IBC Bill would be tabled in Parliament in the second half of the Budget session. 

The IBC Bill has proposed changes including a credit-initiated insolvency resolution process and a two-tier approval framework for resolution, besides bringing in provisions for group and cross-border insolvency. 

An important clarification made to the Bill relates to claims raised by state or central authorities stating that only if there is a contractual agreement among parties for such claims would they be treated as secured creditors and would not automatically get a higher priority in the IBC.

The proposed Bill has brought significant reforms with the addition of a clause that allows assets of personal or corporate guarantor to be transferred to lenders as part of insolvency resolution. 

“The approval has come at an opportune time because there is an urgent need to cut systemic delays and promote cross-border insolvencies,” said Prateek Kumar, partner, Khaitan & Co. 

An important suggestion by the select committee was addressing, more proactively, delays at the level of the adjudicating authority, and stricter guardrails for resolution professionals to avoid any loss of integrity.

The parliamentary panel has suggested that the Bill be revised to include a provision that would bar a resolution professional from becoming the liquidator.