IBBI Proposes Major Amendments to CIRP Regulations

The Insolvency and Bankruptcy Board of India (IBBI) released a discussion paper on June 7, 2023, proposing several changes to the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

It was felt by the Board that under the Insolvency and Bankruptcy Code, 2016, fewer companies were undergoing resolution processes with lessening resolution values. Additionally, the time taken for such resolution processes also routinely exceeds the period prescribed by law. Accordingly, the paper made recommendations aimed at improving the voting process, extending the timeline for claim submission, and introducing audits for the cost of the insolvency resolution process in certain cases.

Some of the recommendations are discussed below: –

  • The regulations do not take into consideration the preferences of the creditors who vote in favour of all available resolution plans so that they are not dissenting creditors. To remedy the same, the Board suggests implementing a system of voting with preference. If no plan garners the required 66% votes, the proposal with the fewest first preference votes would be eliminated. Its first preference would then be allotted to the second highest-voted plan.
  • Regulation 12 of the CIRP Regulations provides for a framework for submission and proof of claims by creditors. The proposed amendment to this regulation requires resolution professionals to provide reasons for rejecting any claim, and creditors could submit claims beyond the 90-day limit without approaching the adjudicating authority. According to the IBBI, extending the timeline for claim submission would enhance flexibility, reduce the burden and improve transparency. However, the Board also holds that it has the potential of causing delays in the process and would also increase the responsibilities of the resolution professionals.
  • Regulation 4(2) provides that the corporate debtor or any of its representatives are required to provide the resolution professional with the requisite information. However, the regulations do not prescribe the manner in which assets and records of the corporate debtor would be handed over. With respect to this, the IBBI suggests that promoters or individuals associated with the management of the corporate debtor should hand over the assets according to the company’s balance sheet. If the balance sheet is unavailable, a list of assets to be transferred should be prepared for the resolution professional.
  • The application process may require creditors to submit an affidavit detailing the chronology of the debt and default, along with an explanation of why the application is not barred by limitation. To benefit homebuyers, the authorized representative of financial creditors may be given more responsibility, such as assisting in increasing the marketability of the debtor’s assets and modifying the resolution plan as desired by the Committee of Creditors (CoC).
  • Section 25A provides for the rights and duties of the authorized representatives of financial creditors within a given class. As the authorized representative acts as an intermediary between the Committee of Creditors and the Corporate Debtor; this dual role and responsibilities obliges them to receive increased benefits. The IBBI proposes doubling the fee of the authorized representative to align with their increased duties.
  • The typographical error appearing in the model timeline for CIRP provided under Regulation 40A is sought to be rectified – the timeline for the issue of information memorandum, evaluation matrix and request for resolution plans (which has to be done within 5 days of the issue of the provisional list of prospective resolution applicants) would be changed from T+105 to T+90.
  • If the corporate debtor’s assets exceed Rs. 100 Cr according to the last available financial statements, the Resolution Professional has to ensure that the audit of the Insolvency Resolution Process Cost (IRPC) is done after such cost is finalized for the financial year. In such cases, the audit has to be conducted by a Chartered Accounted recognized as an insolvency professional. Currently, the regulations do not require carrying out an audit of the IRPC.
  • Furthermore, the IBBI suggests amendments to Regulation 39(4) of the CIRP Regulations in order for the existing Form H to include the relevant minutes of CoC meetings.

The IBBI has also invited comments from the general public regarding the recommendations with a deadline of June 27, 2023, for all electronic submissions.