Tax Conundrum in Insolvency & Bankruptcy Acquisitions Vishwas Panjiar, Partner, Nangia Andersen LLP
Insolvency & Bankruptcy Code (IBC) and its evolution The Insolvency and Bankruptcy Code, 2016 (IBC) is the bankruptcy law of India which seeks to consolidate the existing framework by creating a single law for insolvency and bankruptcy
Introduction of the IBC law
Pre-packaged insolvency resolution process for corporate persons MSMEs due to the extreme economic problems posed by COVID-19
Resolution plan requires approval of 66% (of the voting share of financial creditors instead of the earlier requirement of 75%
Home buyer’s inclusion
Creditor approval
IBC COVID suspension
Ordinance dated 6th June, 2018: the rights of the home buyers have found legislative recognition and offered a much needed relief.
IBC Ordinance 2020 suspended initiation of corporate insolvency resolution process for six months dated 05.06.2020
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Pre-Packaged Insolvency
Cross-border insolvency regime Roll out of draft cross border insolvency provisions
Insolvency & Bankruptcy Code (IBC): Current Outlook
1st Dec 2016 Enactment Date
63 Rank In ‘Ease of doing business” India has climbed from 130 in 2016 to 63 in 2020
1.6 years Average resolution timeline in IBC in 2020(From 4.4 years in 2016)
73% cases
46% cases
Haircut under IBC
have exceeded the timeline of 270 days
have closed due to liquidation rather than approval of resolution plan
40% & 20%
3068 & 1640
2.5 Lakh Crore
Ongoing and closed cases respectively.
Recovery of out total admitted claims of 7 lakh crore as at June,2021
Upto 80%
of the cases are from Manufacturing and Real Estate respectively.
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Road so far: Income Tax Act amends for IBC companies Income tax Act, 1961 amendments Finance Act 2018: Section 140 amended for ITR verification by Resolution professional
MAT provisions Allowability of deduction of loss (including unabsorbed depreciations) in MAT
*Section 79 non applicability albeit change in shareholding after opportunity to Commissioner
*Relaxations only after affording a reasonable opportunity of being heard to the jurisdictional Principal Commissioner or Commissioner
(Fourteenth Amendment) Rules, 2020, w.r.e.f. 1-4-2020 *Rule 11UAC
Rule 11UAD
Relaxation from taxability for receiving unquoted shares for under 56(2)(x) and 50CA*
Relaxation from applicability of under 50CA on transfer of unquoted shares of company under IBC
*Relaxations only after affording a reasonable opportunity of being heard to the jurisdictional Principal Commissioner or Commissioner.
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Multifaceted IBC acquisition strategizing
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Asset pool estimation
Consideration structuring including funding modality
Listing, vis-à-vis, Delisting of CD
Corporate Restructuring Strategy
Resolution value timing and structuring
Business synergy and alignment and post integration fitment
IBC under the tax lens Taxability of Write-back of loans under normal tax and MAT provisions
Section 56(2)(x) applicability in case of acquisition of Listed Corporate Debtor shares
Capital gains on transfer of distressed assets or crown jewel of Corporate Debtor to facilitate maximisation of value
Looming additional tax contingent tax liability for pending tax litigation
Capital gains on transfer of distressed assets or crown jewel of Corporate Debtor to facilitate maximisation of value
Uncertainty on current tax relations since same subject to Departmental review
Multiplicity of tax issues and uncertainty around the relaxations provided can lead to stalling the resolution process and entail unforeseen tax outlay for the resolution applicants
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Budget expectations Tax exemption from for Hair cuts emanating from IBC process
Unfettered continuity of tax losses of the company which goes through IBC process
Exemption from anti-abuse Deeming provisions Section 56 of the ITA to provide level playing field
Clarification with respect to claim of IBC expenses
Specific relaxation to IBC acquisition from GAAR
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Thank You Vishwas.Panjiar@nangia-andersen.com
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