IBBI Proposes Reforms For Efficient Corporate Resolution: All You Need To Know
Here are the key changes proposed by the IBBI to streamline the corporate resolution process.
The Insolvency and Bankruptcy Board of India has suggested changes to certain regulations to make the corporate resolution process more efficient and to prevent any delays in the execution of the resolution plan.
Here are the key changes:
1) Approval of CoC for insolvency resolution process cost
The proposal by IBBI suggests that the insolvency professional should obtain approval for all the different aspects of the cost involved in the process of resolving the insolvency. This includes the expenses incurred for keeping the business operations running during the insolvency period.
According to Rajiv Chandak, partner at Deloitte India, approval from the CoC for process cost will bring a lot of clarity among stakeholders, and accordingly, they may decide to continue support or find more meaningful deployment of resources.
2) Monthly CoC meetings
IBBI suggested that the Resolution Professional is to be mandated to organize monthly meetings of the CoC.
The proposed regulation involves making changes to Regulation 18(1) of the CIRP Regulations. According to the proposed amendment, the resolution professional is permitted to arrange a meeting of the committee whenever they deem it necessary.
Further, the period between the date of one meeting and the date of the next meeting should not exceed 30 days.
Frequent and regular meetings of the CoC will support CIRP processes in better and more timely decision-making, according to Bhrugesh Amin, partner at BDO India. This will all help in deciding on critical matters that are stuck in litigation and timely completion of processes as envisaged under IBC.
3) Discussion of valuation methodology and report with CoC
IBBI suggests that before the valuation report is finalised, the valuers responsible for assessing the value of the company's assets should explain the methodology they used to determine the valuation.
This explanation is to be provided to the members of the committee during a meeting arranged by the Resolution Professional.
The proposed amendment involves making changes to sub-regulation (1)(a) of Regulation 35 of the Corporate Insolvency Resolution Process Regulations.
4) Disclosure of fair value in the Information Memorandum
IBBI suggested that due to the benefits related to revealing the fair value in connection with the resolution process, they are proposing that the fair value should be included as a component of the Information Memorandum.
5) Continuation of process activities, pending disposal of extension application by the Adjudicating Authority
IBBI suggested that there is a need for clarity regarding the continuation of the resolution process, when the application filed with the Adjudicating Authority is pending for the extension orders. This is to ensure that the Resolution Professional can carry out their responsibilities effectively during this period.
6) Clarity in minimum entitlement to dissenting financial creditors
IBBI suggested that when it comes to creditors who don't agree with the resolution plan for a company in financial trouble, they should receive an amount that is lower than two options:
The amount they would have received if the company's assets were liquidated and the money was distributed based on a specific order of priority.
The amount they would have received if the resolution plan was executed in a way that followed the same order of priority.
According to Sushmita Gandhi, partner at IndusLaw, the changes have made an honest attempt to address the anomalies around the entitlement of the dissenting financial creditors by clarifying the minimum entitlement to them.
They also suggest changing regulations to ensure that financial creditors who have the right to vote but didn't support the resolution plan will be paid before those who did support the plan if the company ends up in liquidation.
According to Anoop Rawat, partner at Shardul Amarchand & Co., suggestions regarding payment to assenting and dissenting creditors need further deliberation given recent Supreme Court judgements on the timing of payment to dissenting financial creditors.
7) Mandatory contents of the resolution plan
IBBI suggested to divide the resolution plan into two parts:
Part A: This section of the plan will focus on the money coming in, including the total value of the resolution plan, how the costs of the resolution process will be paid, the timeline for payments, and an assessment of how feasible and viable the resolution plan is.
Part B: This part of the plan will address how the money will be distributed among the different people involved, such as creditors and other stakeholders. This division is meant to make the resolution process more organised and efficient.
According to Bikash Jhawar, partner at Saraf and Partners, distinguishing resolution and distribution is a welcome proposal as the value of the insolvent target has no relationship with the claims of prior creditors.
Judiciary should be able to use the proposal to make faster judgments on the takeover aspects of a resolution proposal, he said.
According to Mukesh Chand, partner at Economic Laws Practice, besides addressing these issues, there is a need to ensure faster disposal of cases by NCLTs, through use of experts and technology as maximum destruction of value occurs when plans don't get approved in time.
