Lok Sabha passes Insolvency and Bankruptcy Code Amendment bill

The Lok Sabha has passed the Insolvency and Bankruptcy Code (Second Amendment) Bill 2018.

The Ordinance amends the Insolvency and Bankruptcy Code, 2016 to clarify those allottees under a real estate project should be treated as financial creditors.

The voting threshold for routine decisions taken by the committee of creditors has been reduced from 75% to 51%.  For certain key decisions, this threshold has been reduced to 66%.

The Ordinance allows the withdrawal of a resolution application submitted to the NCLT under the Code.  This decision can be taken with the approval of 90% of the committee of creditors.

Key Issues and Analysis

The rationale for classifying allottees under a real estate project as financial creditors may be questioned.  Further, the Ordinance does not clarify whether allottees are secured or unsecured financial creditors.  In the absence of allottees having a clear status, there may be uncertainty about their priority when receiving dues from the insolvency proceedings.

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