The recent amendments to the Insolvency and Bankruptcy Board of India (IBBI) regulations deserve attention. These changes aim to enhance the value of companies under stress, enabling the sale of one or more assets during the insolvency resolution process. This new procedure will be of significance for stakeholders, uplift the market-led solutions for insolvency resolution, and bring better-quality information about the insolvent company to the table in a timely manner.
New Amendments to IBBI Regulations
The IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, have seen significant changes recently. The Committee of Creditors (CoC) can now consider whether a compromise or arrangement can be explored for a Corporate Debtor (CD) during the liquidation period.
By June 2022, as many as 1,703 Corporate Insolvency Resolution Processes (CIRPs) had ended up in liquidation. To counter this, the regulator has authorized the resolution professional and the CoC to seek the sale of one or more assets of the CD in cases where there are no resolution plans for the whole business.
In addition, the amendments allow a resolution plan to include the sale of one or more assets of the CD to one or more successful resolution applicants, ensuring appropriate treatment of the remaining assets. A Resolution Professional (RP) must actively seek claims from known creditors based on the books of accounts, thus providing a clearer picture of the debt.
Ensuring Transparency and Avoiding Fraudulent Transactions
Under the new regulations, RPs are required to offer an opinion on whether the company has been subject to avoidance transactions within 75 days of the start of CIRP. They also need to assess and report if the company has completed any transactions to divert funds prior to insolvency proceedings. This aims to prevent fraudulent transactions and ensure transparency in insolvency resolution processes.
Moreover, any appointments made by RPs should follow a transparent process. Resolution applicants will be given details of any applications filed for avoidance of transactions before submitting their resolution plans.
The Expanded Role of Information Memorandum
The information memorandum is now required to include material information that will assist in assessing its position as a going concern, in addition to information about its assets. This meets the market’s critical need for comprehensive information about an insolvent company.
Significance of Amended Regulations
These amendments enable stakeholders to reclaim lost value and deter them from entering into disadvantageous transactions. They also allow for a longer time for the asset in the market, thus providing an incentive for better market-led solutions for insolvency resolution.
About Insolvency and Bankruptcy Board of India
IBBI, established in 2016 under the Insolvency and Bankruptcy Code, 2016 (Code), is a crucial part of the ecosystem responsible for the Code’s implementation. The Code consolidates and amends the laws related to reorganization and insolvency resolution. IBBI regulates a profession and processes and has oversight over Insolvency Professionals, Insolvency Professional Agencies, Insolvency Professional Entities, and Information Utilities.
As a crucial development, IBBI has been designated as the ‘Authority’ under the Companies (Registered Valuers and Valuation Rules), 2017 for regulation and development of the profession of valuers in the country. In addition, it has launched the Scheme for Sustainable Structuring of Stressed Assets (S4A Scheme) to fight bad debts of banks and restructure big debt projects.
