Insolvency panel proposes wider contribution in, use of IBC Fund
The government-instituted Insolvency Law Committee has proposed to expand the scope of IBC Fund, which has been provided in the Insolvency and Bankruptcy Code (IBC) for the purposes of insolvency resolution, liquidation and bankruptcy of persons under the Code.
In a recently floated draft paper, the committee has proposed that suitable amendments may be made to Section 224 to allow the Central Government to prescribe a detailed framework for contribution to and utilisation of the IBC Fund.
This framework may capture and detail various sources for contribution to the IBC Fund. It may also capture amounts lying in the Companies Liquidation Account of the Companies Act, 1956 or the Companies Liquidation Dividend and Undistributed Assets Account under the Companies Act, 2013.
According to the committee, the current design of the IBC Fund does not incentivise contributions to it and provides very limited ways of utilising the amounts contributed. The contribution to the Fund is voluntary and may be made by the Central Government in the form of grants and by any person who voluntarily wants to make such contribution.
The committee, therefore, feels that receiving contributions voluntarily may be difficult in practice and certain incentives or mandates may be required to enable regular contributions.
As for the purposes for which the Fund, the committee feels that its utilisation as prescribed currently are limited. Section 224(3) only allows persons who have contributed to the fund to withdraw it, to the extent of their contribution. This limits the possible utilisation of the IBC Fund.
Therefore, the committee also proposes that specific and wider uses of the IBC Fund may also be identified. For instance, the IBC Fund can support some expenses of resource-strapped insolvency proceedings, such as payment towards workmen’s dues, or for carrying forward avoidance proceedings, etc.
These proposals are part of five key changes proposed by the Insolvency Law Committee recently. The key purpose of the changes is to make the whole resolution process faster and more efficient.
Also See: Panel proposes more changes in IBC to expedite insolvency resolution process
