The government notified amendments to the Companies Act 2013, aimed at making the insolvency process more effective. The Companies (Amendments) Act 2017, which received Parliament’s nod in the just-concluded winter session, have put restrictions on managerial remuneration when a company has defaulted in its dues. Companies, which have defaulted on their dues to financial institutions, will now require the prior approval of these creditors, besides approval in a general meeting in case the payment of managerial remuneration exceeds 11% of the net profits.
Earlier, only the company’s prior approval in a general meeting was required. The amendments have also allowed issuance of shares at a discount to the creditors in cases where debt is converted into shares in pursuance of a resolution plan under the Insolvency or Bankruptcy Code or a debt restructuring scheme. The changes to the Act also bar a registered valuer from undertaking valuation of any asset in which he has direct or indirect interest for a period of three years before or after his appointment. These changes are a part of the government’s efforts to remove or change laws that are impeding the effective resolution of bankrupt companies.
The income tax department said that the rules around levy of minimum alternate tax (MAT) will be eased for insolvent companies and also that the companies against whom insolvency proceedings have been initiated will be allowed to reduce the entire amount of loss brought forward, including unabsorbed depreciation from the book profit for calculation of MAT. It was also added that legislative changes will be made to make this more effective.