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Informist, Tuesday, Feb. 4, 2025

 

NEW DELHI – A discussion paper by the Insolvency and Bankruptcy Board of India on Tuesday proposed allowing resolution professionals of a debt-ridden company to invite resolution plans concurrently for both the company as a whole and for its specific businesses or assets, with the approval of the committee of creditors. 

 

This proposal removes the requirement that resolution professionals can only seek asset-specific plans after attempts to invite resolution plans for the entire corporate debtor have failed, the insolvency board said. By enabling concurrent invitations, the resolution process can reduce timelines, prevent value erosion in viable segments, and encourage broader investor participation, the insolvency board added.

 

In addition, the paper suggested that the committee of creditors can request the national company law tribunal for a two-stage approval process of resolution plans, where the financial bid and basic implementation framework may be approved early. This would enable the resolution applicant to take over the corporate debtor and proceed with plan implementation early, said the board. Subsequent hearings at the tribunal could address inter-creditor disputes, distribution matters, and other related aspects, the board added.

 

Further, the paper proposed that there should be a mechanism for coordination of the corporate insolvency resolution process of interconnected entities. This may include provisions for joint hearings, appointment of a common resolution professional, information sharing protocols and coordinated timelines. This amendment aims to increase efficiency, reduce costs, and improve outcomes in cases involving multiple interconnected entities undergoing a corporate insolvency resolution process simultaneously, said the board.  

 

The paper also mooted to mandate the resolution professional to present all resolution plans received to the committee of creditors, regardless of their compliance status. For each resolution plan, the resolution professional must provide a detailed compliance report to the committee of creditors, highlighting any areas of non-compliance with Section 30(2) of the Insolvency and Bankruptcy Code, 2016 or any other relevant regulations, said the paper. The resolution professional must explain to the committee of creditors the reasons for considering any plan as non-compliant, the paper added.

 

The board noted that there were several instances where resolution applicants seek additional reliefs, concessions, or modifications to the approved resolution plan after it has been approved by the tribunal. To address these issues, it is proposed to amend the insolvency regulations to explicitly state that no modifications can be sought once a resolution plan is approved under Section 31 of the Code, said the paper. All conditions must be built into the resolution plan before approval, the paper added.

 

The paper proposed that the insolvency resolution process for personal guarantors to corporate debtors regulations should be amended to mandate the resolution professional to submit a report to the tribunal, notifying it of the non-submission of a resolution plan. Based on this report, the tribunal may terminate the insolvency resolution process for the personal guarantor, thereby enabling the debtor or creditor to file an application for bankruptcy, said the paper.

 

Further, the paper suggested omitting the provisions relating to sale as a going concern in liquidation regulations. This change would streamline the liquidation process, reduce legal uncertainties, and potentially lead to faster resolution of cases, the paper added.

 

To strengthen the regulatory framework for avoidance transactions, the paper mooted mandatory detailed disclosure of identified avoidance transactions in the information memorandum. Avoidance transactions disclosed in the information memorandum and also intimated to all prospective resolution applicants before the final submission deadline, may be incorporated into resolution plans, the paper said. Avoidance transactions not communicated to all prospective resolution applicants or not disclosed in an information memorandum cannot be transferred under the resolution plan, the paper added.

 

To address the concerns and enhance the attractiveness of interim financing, the paper proposed to empower the committee of creditors to decide on inviting interim finance providers to attend its meetings as observers, with no voting rights. The paper also sought to mandate the submission of a statement of affairs by the corporate debtor to reduce the challenge faced by resolution professionals on the lack of readily available, comprehensive information about the debtor.

 

The paper proposed to strengthen the committee of creditors' decision-making process by mandating regular review of significant operational expenses during the insolvency process, especially with respect to leased property. To maintain continuous oversight, the amendment proposes quarterly review of these expenditures as a mandatory committee of the creditor's meeting agenda, said the paper. This will enable the committee to make informed decisions about continuing or surrendering specific lease agreements based on their necessity and value to the resolution process, the paper added.  End

 

Reported by Surya Tripathi

Edited by Avishek Dutta

 

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