Latest Procedural Developments vis a vis the I&B Code
The Insolvency and Bankruptcy Board of India (‘The Board’) on 13th November 2020 through a press release has notified various procedural amendments in the regulations pertaining to the Insolvency Resolution Process for Corporate Persons Regulations, the Liquidation Process Regulations and the Information Utility Regulations.
The Highlights of the Amendments in the respective Regulations are as follows:-
A. The Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) (Fifth Amendment) Regulations, 2016
- As per section 7 of the I&B Code, a Financial Creditor is bestowed with the power to initiate the Corporate Insolvency Resolution Process (‘CIRP’) against a Corporate Debtor. However, the financial creditor in order to substantiate the pre occurred default, has to furnish ‘evidence of the default’ recorded with the information utility along with the application made under section 7.
- The Board in pursuance of this power has amended the Regulations to specify/add two ‘other record’ or ‘evidence of default’ which are:-
- Certified copy of entries in the relevant account in the bankers’ book, and
- Order of a Court or Tribunal that has adjudicated upon the non-payment of a debt.
- The Board added clause 2A in the principal Insolvency Resolution Process for Corporate Persons Regulations as follows :
“2A. Record or evidence of default by financial creditor.
For the purposes of clause (a) of sub-section (3) of section 7 of the Code, the financial creditor may furnish any of the following record or evidence of default, namely:-
- certified copy of entries in the relevant account in the bankers’ book as defined in clause (3) of section 2 of the Bankers’ Books Evidence Act, 1891 (18 of 1891);
- an order of a court or tribunal that has adjudicated upon the non-payment of a debt, where the period of appeal against such order has expired.”.
- The Board mandated the Information Utilities to disseminate the public announcement to its registered users, who are creditors of the CD undergoing insolvency proceeding. This is in addition to publishing the public announcement in the newspapers and websites as required in the Regulations. The Board in pursuance of the same, added to the principal regulations, in regulation 13, in sub-regulation (2), after clause (c), the following clause namely: –
- “(ca) filed on the electronic platform of the Board for dissemination on its website: Provided that this clause shall apply to every corporate insolvency resolution process ongoing and commencing on or after the date of commencement of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) (Fifth Amendment) Regulations, 2020;”.
- The Board further added in the principal regulations, in regulation 39, after sub-regulation (5), the following sub-regulation shall be inserted, namely: –
- “(5A) The resolution professional shall, within fifteen days of the order of the Adjudicating Authority approving a resolution plan, intimate each claimant, the principle or formulae, as the case may be, for payment of debts under such resolution plan: Provided that this sub-regulation shall apply to every corporate insolvency resolution process ongoing and commencing on or after the date of commencement of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) (Fifth Amendment) Regulations, 2020;”
- The Regulations provide that the Interim Resolution Professional (IRP) / Resolution Professional (RP) shall verify every claim and thereupon maintain a list of creditors and update it. He is required to file the list of creditors with the Adjudicating Authority (AA) and display it on the website, if any, of the CD. The Board amended this Regulation to require the IRP/RP to submit the list of creditors on an electronic platform for dissemination on its website. The aim of the amendment was to improve transparency and also enable stakeholders to ascertain the details of their claims at a central place.
- The resolution plan usually provides payment of debts to the creditors of the CD. To improve the level of transparency, the IBBI amended the Regulations to require the RP to intimate each claimant the principle or formulae for payment of debts under a resolution plan, within 15 days of the order of the AA approving such resolution plan.
B. Insolvency and Bankruptcy Board of India (Information Utilities) (Amendment) Regulations, 2020.
- The Board inserted the following in the principal regulations, after Regulation 21:-
“21A. Dissemination of public announcement.
An information utility shall disseminate every public announcement it receives or has access to, on the date of its receipt or access, as the case may be, to its registered users, who are creditors of the corporate debtor undergoing insolvency proceeding under the Code.”.
C. Insolvency and Bankruptcy Board of India (Liquidation Process) (Fourth Amendment) Regulations, 2020.
- The Board inserted the following clauses in the Liquidation Process Regulations:-
“30A. Transfer of debt due to creditors.
- A creditor may assign or transfer the debt due to him or it to any other person during the liquidation process in accordance with the laws for the time being in force dealing with such assignment or transfer.
- Where any creditor assigns or transfers the debt due to him or it to any other person under sub-regulation (1), both parties shall provide to the liquidator the terms of such assignment or transfer and the identity of the assignee or transferee. (3) The liquidator shall modify the list of stakeholders in accordance with the provisions of regulation 31”.
“37A. Assignment of not readily realizable assets.
- A liquidator may assign or transfer a not readily realizable asset through a transparent process, in consultation with the stakeholders’ consultation committee in accordance with regulation 31A, for a consideration to any person, who is eligible to submit a resolution plan for insolvency resolution of the corporate debtor.
Explanation.- For the purposes of this sub-regulation, “not readily realizable asset” means any asset included in the liquidation estate which could not be sold through available options and includes contingent or disputed assets and assets underlying proceedings for preferential, undervalued, extortionate credit and fraudulent transactions referred to in sections 43 to 51 and section 66 of the Code.”.
- The Code envisages early closure of the liquidation process so that the assets of the CD are released for alternate uses expeditiously. However, the process takes longer where the liquidation estate includes assets that are not readily realizable. To facilitate quick closure of the liquidation process having such assets, the amended Regulations enables the liquidator to assign or transfer the assets that are ‘not readily realizable’ to any person in consultation with the stakeholders’ consultation committee.
- For this purpose, “not readily realizable asset” has been clearly defined in the press release. Any asset included in the liquidation estate which could not be sold through available options and includes contingent or disputed assets, and assets underlying proceedings for preferential, undervalued, extortionate credit and fraudulent transactions.
- Thus, a liquidator shall attempt to sell the assets at the first instance, failing which he may assign or transfer an asset to any person, in consultation with the stakeholders’ consultation committee, and failing which he may distribute the undisposed of assets amongst stakeholders, with the approval of the Adjudicating Authority.
- The Board, through amendment also facilitated the transfer of the Debt due to it to any other person in accordance with the laws for the time being in force dealing with such assignment or transfer. This is a favorable amendment for those creditors who may not be willing to wait for the completion of the liquidation process for the realization of his debt.
The aforementioned amendments are a welcome step and thus shall remove practical difficulties and provide clarity, transparency in carrying out the Insolvency Processes.
About the Author:-
Binay Kumar Singhania, Partner, AAA Insolvency Professionals LLP
Co-authored by Team Leader Adv. Aditya Gauri, AAA Insolvency Professionals LLP
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