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The Insolvency and Bankruptcy Board of India (IBBI) has issued a discussion paper aimed at enhancing the operational aspects of the insolvency resolution framework. The proposed amendments include strengthening the Committee of Creditors' (CoC) decision-making process, improving coordination for interconnected entities undergoing insolvency proceedings, and mandating the submission of a Statement of Affairs by corporate debtors. The paper also suggests revisions to the resolution plan submission process, restrictions on seeking modifications post-approval, and the removal of the provision for the sale of corporate debtors as a going concern. Public comments are invited until February 25.
The Insolvency and Bankruptcy Board of India (IBBI) released a discussion paper on Tuesday, addressing various operational challenges within the insolvency resolution framework. The paper proposes key amendments to improve processes, particularly the coordinated resolution of interconnected entities and the submission of resolution plans. Public feedback on the paper is invited until February 25 through the IBBI website. Advertisement
One of the major proposals is to enhance the decision-making process of the Committee of Creditors (CoC) by mandating regular reviews of operational expenses, especially related to leased properties. Under the proposed changes, the resolution process would be required to present a thorough assessment of significant operational expenses, particularly those pertaining to properties under moratorium. This report should be submitted to the CoC within 30 days of its formation. Additionally, quarterly reviews of these expenses would be made a mandatory item on the CoC's meeting agenda.
The IBBI also suggests amendments aimed at improving the resolution process for interconnected entities. This includes the possibility of joint hearings, appointing a single resolution professional for all entities involved, and establishing protocols for sharing information. The goal is to enhance efficiency, reduce costs, and improve outcomes for cases involving multiple entities undergoing Corporate Insolvency Resolution Process (CIRP) simultaneously.
Furthermore, the paper proposes making it compulsory for corporate debtors to submit a Statement of Affairs when facing insolvency proceedings under Section 7 of the Insolvency and Bankruptcy Code (IBC), particularly in cases where applications are filed by financial institutions. The Statement of Affairs will include essential information, such as the last three years of financial statements, details of employees/workmen, and information about the custody of books of accounts and records.
IBBI has also recommended changes to the resolution plan submission process. Under the new framework, all resolution plans, including those that are non-compliant, must be presented to the CoC along with a compliance report from the resolution professional. This change aims to improve transparency and reduce disputes and legal challenges during the resolution process.
To avoid delays and legal complications after the approval of resolution plans, the Board has proposed a ban on seeking reliefs or modifications once a plan has been approved by the adjudicating authority. This move is expected to bring clarity and ensure the process remains on track.
Additionally, the discussion paper recommends removing the provision that allows the sale of corporate debtors as going concerns under liquidation norms. This change is expected to streamline the liquidation process, minimize legal uncertainties, and lead to faster case resolutions. IBBI has noted that sales as going concerns have historically resulted in lower recoveries and longer legal disputes.
Lastly, in cases involving personal guarantors, the paper proposes mechanisms to ensure action is taken when debtors fail to submit a repayment plan. In such instances, the resolution professional would be required to report the situation to the adjudicating authority for further action.
The IBBI's discussion paper outlines several key changes to address challenges in the insolvency resolution process. With a focus on improving decision-making within the Committee of Creditors, enhancing coordination for interconnected entities, and ensuring transparency in the resolution plan submission process, the amendments aim to streamline operations and reduce delays. The proposed changes, including the removal of the sale of corporate debtors as going concerns and the mandatory submission of a Statement of Affairs, could bring much-needed clarity and efficiency to the insolvency framework. Stakeholders are encouraged to provide their feedback by February 25, contributing to the development of a more robust and effective insolvency system.
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