The Union Cabinet approved on Wednesday a number of changes in the Insolvency and Bankruptcy Code to protect new owners of bankrupt companies from liabilities and criminal proceedings against former promoters.
The new set of amendments also aim to boost investment in distressed assets by helping prevent frivolous insolvency proceedings and continuation of a company as a going concern, the government said in a statement.
The amendments, cleared by the Cabinet in a meeting chaired by Prime Minister Narendra Modi, aim to remove certain difficulties being faced during the insolvency resolution process, the statement said.
The changes come after several companies eyeing assets being auctioned under the IBC resolution process expressed concerns over legal troubles they faced due to cases against previous promoters.
Media reports have previously said that steel giant ArcelorMittal had sought immunity from any future investigation into Essar Steel or its erstwhile promoters, the Ruia family. Last month, the Supreme Court had cleared the way for ArcelorMittal’s Rs 42,000 crore acquisition of debt-laden Essar Steel.
JSW Steel Ltd had also made a similar demand in connection to its acquisition of Bhushan Power & Steel Ltd, whose previous promoters are being investigated for alleged money laundering.
The government said that the amendments to remove bottlenecks, streamline the insolvency resolution process and protection of last-mile funding will boost investment in financially distressed sectors.
The changes include the introduction of additional thresholds for financial creditors in order to prevent frivolous triggering of the insolvency resolution process.
The amendments clarify that the licenses, permits and clearances awarded to the bankrupt companies cannot be terminated or suspended during the moratorium period. This will ensure that the underlying business of the bankrupt company is not lost and the company can continue as a going concern, the government said.