The Insolvency and Bankruptcy Board of India (IBBI) recently released amendments to its Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. These adjustments are aimed towards enhancing the transparency, accountability, and discipline in corporate insolvency proceedings. Further recommendations for a pre-pack framework within the basic structure of the Insolvency and Bankruptcy Code (IBC), 2016 were put forth by a sub-committee of the Insolvency Law Committee (ILC) in March 2021.
New Comprehensive Amendments
Certain key points were revealed in the amendments by the IBBI. Among them, there is an emphasis on revealing former names and addresses of the corporate debtor (CD). The insolvency professional (IP) conducting the corporate insolvency resolution process (CIRP) is required to disclose all previous names and registered office address(es) that have been changed two years preceding the commencement of insolvency. This disclosure also covers the current name and registered office address of the CD in all communications and records.
This becomes crucial in the CIRP, which involves steps to revive a company such as raising fresh funds for operation or finding a new buyer to sell the company. Since a CD might have altered its name or registered office address before the initiation of insolvency, the stakeholders may struggle to identify the new name or address, thus failing to participate in the CIRP.
The Role of Professionals in the Amendment
The amendment considers the appointment of professionals as another crucial point. It empowers the interim resolution professional (IRP) or resolution professional (RP) to appoint a professional, not necessarily registered valuers, if they believe that their services could be beneficial for the CD and are not already available. These appointments should be made on an arm’s length basis following a transparent process.
Avoidance of Transactions
The RP has an absolute duty to ascertain if a CD has been exposed to avoidance transactions, namely, extortionate credit transactions, preferential transactions, undervalued transactions, wrongful trading, and fraudulent trading. If any of the aforementioned is discovered, they are to file applications with the Adjudicating Authority for necessary relief.
Significance of Amendments
These amendments can help stakeholders retrieve lost value and discourage them from engaging in such transactions. It brings out the essence of insolvency, which refers to a scenario where individuals or firms are unable to pay their outstanding debt. Similarly, bankruptcy represents a situation where a competent court declares an entity insolvent and passes appropriate orders to resolve it.
Insolvency and Bankruptcy Code Enactment
This code was enacted in 2016 with the objective of consolidating provisions of the existing legislative framework to form a common platform for all types of debtors and creditors to resolve insolvency. It also targeted to accelerate the resolution process of failed businesses, specifying that the resolution process for a stressed company must be completed within 270 days at most.
Institutions to Aid in Resolution of Insolvency
Various institutions have been established to facilitate the resolution process. These include insolvency professionals, insolvency professional agencies, information utilities, adjudicating authorities, and the Insolvency and Bankruptcy Board. Each of these institutions plays a unique role in the resolution process, ranging from administering the process, managing the assets of the debtor, providing information for decision making, to regulating insolvency professionals and agencies.
Insolvency Resolution Process
This process can be initiated by any stakeholder of the firm such as debtors, creditors, or employees. Once the adjudicating authority accepts, an IP is appointed, and the power of the management and the board shifts to the Committee of Creditors (CoC). The IP then has to determine whether to revive the company or liquidate it. If revival is opted for, a buyer needs to be found. Moreover, creditors must consent to a significant debt reduction, known as a haircut. Open bids are then invited from interested parties to buy the firm. The party with the best resolution plan accepted by the majority of the creditors takes over the management of the firm.
