The
insolvency and bankruptcy code (IBC) as recently undergone changes and amendments.
These reforms have settled some concerns but new problems may arise. IBC was
formed in an attempt to create a holistic law that addressed all the concerns of
declining industries from the days of Sick Industrial Companies Act 1985 to Securitization
and Reconstruction of Financial Assets Act 2002.
Now when companies take over loss-making units they can still carry on business with assurance that no criminal proceedings will be raised against them or the acquired assets if offences were committed before insolvency. Some experts are under the opinion that this change might have unintended consequences like money laundering. There have been many instances of an investigation authority attaching properties of transgressing promoter before approval from the judicial system. This is especially true in criminal cases where the insolvent properties were acquired through embezzlement money laundering and other economic crimes.
There is a controversy regarding the bills proposal on termination or suspension of a license or permit. This is because of the condition that no default in dues that arise for the user continuation of the said license, permits etc. during the moratorium period. This benefit is only available to companies with sufficient cash flows, enough to meet current statutory dues. This diminishes the value of the proposition for companies that are unable to meet these expenses.
The resolution professional (RP) is to be given more powers to ease the functioning of the insolvent company during the moratorium period. The RP is now in charge of the companies operation beyond the expiry of the resolution period till a liquidator is appointed. The new changes in the bill allow the RP to decide which services are critical to the operation of the company.
This amendment bill encouraged well transfer from small companies like MSME’s by forcing them to make the financials of an insolvent company look better. While this move cant smoothen the insolvency and decentralization process of a loss making unit, the extra power handed to the RP can have adverse side effects. The RP can decide which processes are critical enough to manipulate the fate of the insolvent company for good or ill. The long term consequences of this amendment cannot be forcing.
Now when companies take over loss-making units they can still carry on business with assurance that no criminal proceedings will be raised against them or the acquired assets if offences were committed before insolvency. Some experts are under the opinion that this change might have unintended consequences like money laundering. There have been many instances of an investigation authority attaching properties of transgressing promoter before approval from the judicial system. This is especially true in criminal cases where the insolvent properties were acquired through embezzlement money laundering and other economic crimes.
There is a controversy regarding the bills proposal on termination or suspension of a license or permit. This is because of the condition that no default in dues that arise for the user continuation of the said license, permits etc. during the moratorium period. This benefit is only available to companies with sufficient cash flows, enough to meet current statutory dues. This diminishes the value of the proposition for companies that are unable to meet these expenses.
The resolution professional (RP) is to be given more powers to ease the functioning of the insolvent company during the moratorium period. The RP is now in charge of the companies operation beyond the expiry of the resolution period till a liquidator is appointed. The new changes in the bill allow the RP to decide which services are critical to the operation of the company.
This amendment bill encouraged well transfer from small companies like MSME’s by forcing them to make the financials of an insolvent company look better. While this move cant smoothen the insolvency and decentralization process of a loss making unit, the extra power handed to the RP can have adverse side effects. The RP can decide which processes are critical enough to manipulate the fate of the insolvent company for good or ill. The long term consequences of this amendment cannot be forcing.
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