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Company law amendments to add teeth to IBC

Published: 30 Jan 2018

Ever since the enforcement of the Insolvency and Bankruptcy Code (IBC), the Central government has been revising various other related laws to ensure effective implementation of IBC provisions and to ensure that no existing law collides with IBC – which could result in the conflict defeating the purpose of IBC.

In this background, a notification has been issued by the Central government to the public. This notification reiterates that the underlying objective behind certain amendments made to the Companies Act, 2013 recently is to append the IBC provisions and to make certain the effective implementation of IBC, i.e., initiating strict action against the defaulting companies and facilitate quick disposal of insolvency cases.

As discussed in my earlier blogs, the Companies Act, 2013 has been amended to supplement the IBC and ensure that there will be no conflict between the Companies Act, 2013 and IBC. Both enactments should supplement each other for their effective enforcement and to further fortify ease of doing business sentiment in India.

For example, the following is a gist of certain amendments formulated with the intent to back-up the strong enforcement of IBC:

·    If any company (defaulted in loan payment to banks and financial institutions) intends to enhance the managerial remuneration in excess of permitted limits of the company’s net profits - is obligated and mandated to obtain prior approval of creditors along with approval obtained in general meeting.

·    Issue of shares at discount to the creditors by the company is endorsed when its debt is converted into shares in carrying out of any statutory resolution plan or debt restructuring scheme.

·    No registered valuer will be permitted for a period of three years (before or after the appointment as valuer) to undertake valuation of any asset in which such valuer has any direct or indirect interest.

It is evident that the Central government is trying to come up with a mechanism to ensure that all roadblocks are wiped out for effective implementation of IBC. Central government’s endeavor is to make the IBC fully equipped with effective weapons to deal with the menace of defaulting companies and to accelerate the disposal of insolvency cases.

Research inputs by Paruchuri Baswanth Mohan

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About the author :

Bhumesh Verma is a lawyer with over 2 decades of experience in advising domestic and international clients on corporate transactions (M&A, Venture Capital, Private Equity, Startups, corporate advisory, etc.) and features in "The A-List - India's Top 100 Lawyers" by India Business Law Journal. He keeps writing frequently on FDI, M&A and other corporate matters and is a guest faculty as well. He can be reached at bhumesh.verma@corpcommlegal.com.

Bhumesh Verma

Firm: Corp Comm Legal
Country: India

Practice Area: Contract

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