Context:

The Insolvency and Bankruptcy Code (Second Amendment) Act, 2020 received the assent of the President in September 2020.

About the Act:

• The Act seeks to amend the Insolvency & Bankruptcy (Amendment) Ordinance, 2020 & Insolvency & Bankruptcy Code, 2016.
• Objective: To determine the solutions for Non-Performing Assets.

Key Provisions of Insolvency & Bankruptcy (Second Amendment) 2020:

• Collective mechanism: This Code provides for the collective mechanism for resolving the insolvency within the framework of equity and fairness to all the stakeholders and to preserve economic value in the process.
• Time bound process: It prescribes the process that is time-bound for resolving Insolvency in companies as well as among individuals.
• Suspension of CIRP: It seeks to suspend the Corporate Insolvency Resolution Process also known as CIRP and is mentioned under Chapter 4 of Insolvency & Bankruptcy Code, 2016.
• Liability for Wrongful Doing: Under the Insolvency & Bankruptcy Code, any director or the partner of the corporate debtor might be held liable to add their contributions to the assets of the company in certain situations.
• Prohibitions: Furthermore, it prohibits the Resolution Professional from filing such an application in relation to the defaults for which initiation of the Corporate Insolvency Resolution Process has been prohibited.

Need of the Second Amendment:

• Ambiguity in the insolvency process: This code focus on Insolvency Utility (IU) but it does not specify that full information about a company will be accessible through a single query from any IU.
• Overtly Regulation by Board: Multiple licensed professionals are required to regulate IPAs.
• Non-specific Fund: The Code creates an Insolvency and Bankruptcy Fund but it does not specify the manner in which the Fund will be used.
• Time delay: Due to delay in the resolution cases, it increases the litigation costs of banks which are already reeling with stressed assets. IBC allows a maximum of 270 days for lenders to clear a rescue plan.
• Non-coherence in the orders of Tribunals: Because of the absence of the jurisprudence and precedents different NCLTs are giving different rulings.