Amendments in IBBI Regulations
- 21 Sep 2022
- 6 min read
Why in News?
Recently, Insolvency and Bankruptcy Board of India (IBBI) amended its regulations to boost the value of stressed companies.
- The amendments in IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 have been done to maximise value in resolution.
- It will allow the sale of one or more assets of an entity undergoing insolvency resolution process besides other changes.
What are the Amended Regulations?
- The Committee of Creditors (CoC) can now examine whether a compromise or an arrangement can be explored for a Corporate Debtor (CD) during the liquidation period.
- As many as 1,703 Corporate Insolvency Resolution Processes (CIRPs) ended up in liquidation till June 2022.
- The regulator has permitted a resolution professional and the CoC to look for sale of one or more assets of the CD concerned in cases where there are no resolution plans for the whole business.
- A resolution plan to include sale of one or more assets of CD will be enabled to one or more successful resolution applicants providing for appropriate treatment of the remaining assets.
- A Resolution Professional (RP) will have to actively seek claims from known (based on the books of accounts) creditors of the company concerned that will help in making available a clearer picture of the debt.
- RPs will be required to provide an opinion on whether the company has been subject to avoidance transactions within 75 days of the start of CIRP.
- RPs will now be required to assess and report whether the company has completed any transactions to siphon off funds prior to insolvency proceedings.
- The regulations mandate that any appointments made by RPs should follow a transparent process.
- Details of any applications filed for avoidance of transactions will be made available to resolution applicants before submission of resolutions plans and can be addressed by the applicants in their plans.
- The information memorandum is required to contain material information which will help in assessing its position as a going concern, and not only information about its assets, thereby addressing a critical need of the market.
Why is the Significance of Amended Regulations?
- The provisions would allow stakeholders to claw back lost value and would disincentivise stakeholders from entering into such transactions.
- The amendments enable a longer time for the asset in the market.
- The amendments will provide an impetus to better market-led solutions for insolvency resolution.
- This will ensure that better quality information about the insolvent company and its assets is available to the market, including prospective resolution applicants, in a timely manner.
What is Insolvency and Bankruptcy Board of India?
- The Insolvency and Bankruptcy Board of India was established in 2016 under the Insolvency and Bankruptcy Code, 2016 (Code).
- It is a key pillar of the ecosystem responsible for implementation of the Code that consolidates and amends the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximization of the value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders.
- It is a unique regulator as it regulates a profession as well as processes.
- It has regulatory oversight over the Insolvency Professionals, Insolvency Professional Agencies, Insolvency Professional Entities and Information Utilities.
- It has also 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.