Insolvency code amendment carries unintended negative effect – India

On 23 November 2017, the president of India exercised his special powers and issued an ordinance to amend the relatively new Insolvency and Bankruptcy Code, 2016, by introducing section 29A.

An ordinance is used to address urgent issues when parliament is not in session. The urgency in this case was to provide for the prohibition of certain persons from submitting a resolution plan who, on account of their antecedents, may adversely impact the credibility of the process under the code. The persons with undesirable antecedents were, seemingly, the shareholders, promoters and persons managing the insolvent company.

In order to ensure that that the persons with undesirable antecedents did not take benefit from the code, section 29A was very widely worded and provided for eight categories of disqualifications, ranging from disqualification on account of being an undischarged insolvent to disqualification on account of issuance of an enforceable guarantee in favour of a creditor, in respect of the insolvent company. Another disqualification was having an account categorized as non-performing for a period of one year or more.