IBC Tweak to Set Secured Creditor Tag, Procedures

Bill likely in monsoon session; move comes after court orders on bankruptcy cases

- Gireesh Chandra Prasad

The Centre plans to amend the bankruptcy law for greater clarity after recent court rulings altered claims priorities and added procedures, two people familiar with the matter said.

The changes will spell out who qualifies as a secured creditor, one of the two people cited above said on the condition of anonymity. Secured creditors have a lien, or a legal claim, on the assets of a bankrupt company. Claims from a secured creditor get priority over those of other creditors like material suppliers.

"The bill to amend the Insolvency and Bankruptcy Code (IBC) is likely to be submitted in the Parliament's monsoon session. A Cabinet note is now being finalized. One of the areas of amendment is the classification of central and state tax authorities," the person said, adding the idea is to bring clarity on the circumstances when a government authority can be labelled a secured creditor.

While the IBC was enacted to create the most efficient framework in which every factor is aligned towards achieving the primary goal of quick debt resolution, policymakers believe some of the court rulings are not geared to achieve this goal.