New Insolvency Code ordinance to strike out loan defaulters
November 23, 2017In a recent move, the government has recommended an ordinance to tighten the norms to restrict the companies facing insolvency proceeding from bidding for the ailing entities. The government plans to completely ban bidding by wilful defaulters.
In this regard, the government plans to amend Insolvency and Bankruptcy Code to categorically disqualify trained promoters are in control of the entities that have non-performing assets for a prescribed period which could be fixed at one year. If there is a continuous loan default for 90 days this forces banks to classify the borrower as NPA
If this ordinance gets through then it will make promoters of some 12 large companies face insolvency action like for instance, Ruis of Essar Steel and Singhals of Bhushan Steel- eligible to submit bids for their companies next month. Bakers have asserted that both of these companies were classified as NPAs in 2015.
The one year clause may help reduce competition for companies such as JSW, Tata Steel, Arcelor Mittal and Nippon Steel and comes with the risk of bids being less aggressive.
Post the Reserve of Bank of India direction, the 12 companies which account for nearly quarter of NPAs were referred to National Company Law Tribunal by banks like State Bank of India and IDBI Bank to clear the bad debt of nearly Rs. 8.4 lakh crore. This list includes Bhushan Power & Steel, Jaypee Infratech, Monnet Ispat, Amtek Auto, ABG Shipyard.
The details of the ordinance will be released after the approval of the President Ram Nath Kovind. The winter session of Parliament will be commencing on 15th December and the ordinance will be passed in few days.
To revive the insolvent company, the government has enacted Insolvency and Bankruptcy Code. During this period of 270 days, the company is handled by an NCLT appointed professional.
Besides these 12 companies who are at various stages of resolution at least 40 other companies are being reviewed by banks for insolvency proceedings.