The resolution of toxic loans may get speedier. The ministry of corporate affairs (MCA) has proposed changes in the Insolvency and Bankruptcy Code (IBC), chief among them being that the National Company Law Tribunal (NCLT) will have only 30 days to either approve or reject a resolution plan. If the adjudicating authority fails to take a decision within this period, it will have to record reasons in writing for the same.

The aim is to address inordinate delays which erode the value of the stressed assets. “Such delays go against the objective of the Code to provide value-maximising outcomes for stakeholders,” the MCA said.

The other proposed changes relate to liquidation, look-back period, avoidance transactions and wrongful trading.

The government has sought stakeholders’ comments on the proposed amendments by 13 January.

Earlier, the Parliamentary Standing Committee on Finance had said in its August report that 13,170 insolvency cases involving claims of Rs 9.2 lakh crore are awaiting resolution before the NCLT. About 71% of the cases have been pending beyond 180 days, it pointed out.

The MCA has suggested that the two-year look-back period be extended to the date when the corporate insolvency resolution application is filed. Currently, it starts from the date of admission of the insolvency application. 

The MCA is also looking at making it easier for businesses to exit where voluntary liquidation has been sought. Under the proposed amendment, the approval of the NCLT is not required in case of a voluntary liquidation. This can be carried out by a stressed firm with a special resolution or members’ resolution and approval of creditors representing two-thirds in value of the debt.

“The liquidator may be required to make a public announcement of the closure of the process, and intimate concerned authorities, such as the Insolvency and Bankruptcy Board of India (IBBI) and the registrar,” the MCA said.

Regarding avoidance transactions, the ministry has suggested that an explanation may be added to Section 26 of the IBC to clarify that proceedings for avoidance of transactions and wrongful trading can continue even after the approval of a resolution plan.

For making the admission process for insolvency applications faster, the ministry has proposed that financial creditors should be asked to rely on information utility (IU) records to establish default. The NCLT would thus be required to only consider IU-authenticated records as evidence of default for Section 7 applications.

"This will also dissuade AAs from taking time to determine ancillary matters such as the amount of default and allow them to speedily admit Section 7 CIRP applications on the basis of IU authenticated records evidencing the existence of default," the ministry said in the public notice.

The ministry has also proposed changes to the IBC fund. This will go to support part of the expenses of the insolvency proceedings. Since the contribution to it was voluntary, the fund did not gather steam.

The IBC, which came into force in 2016, has undergone several amendments.

The proposed amendments are for the Corporate Insolvency Resolution and Liquidation Framework under the IBC, which is being administered by the corporate affairs ministry.