The IBC has undergone multiple amendments, since its inception in 2016. June saw another major amendment, which finally addressed a few issues which had plagued the Code and had resulted in litigation. The June amendment provided the much-needed relief to home buyers and placed them on par with financial creditors, eased the procedure for seeking an extension of time for competing the CIRP and allowed withdrawal of insolvency proceedings under certain conditions.
The IBBI has now brought in amendments to the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, to bring the Regulations in line with the June amendment.
The amended Regulations provide a model timeline for a corporate insolvency resolution process. The Model Timeline provides milestones that need to be achieved, so that the Corporate Insolvency Resolution process is completed within the span of 180 days, as mandated by the Code. The amended Regulation also require that a resolution professional must be appointed by the 40th day of admission of the corporate insolvency resolution process. In the event that there is no appointment of a Resolution Professional by the 40th day the interim resolution professional shall perform the role of the Resolution Professional (RP), till the RP is appointed.
As on today, we have seen multiples instances of the CIRP going beyond the timelines mandated by the Code. Going beyond the intent of the Code, the Courts have been generous in extending the timeline, in multiple instances. This amendment reinforces the idea of timely resolution of the Bankruptcy of Corporates. However, whether this model timeline sets an achievable target or not, is something that only time will tell.
The amended Regulations further require a resolution professional to ascertain if the corporate debtor has been subjected to certain transaction such as preferential transactions, undervalued transactions, extortionate transactions or fraudulent transactions by the 75th day, and make a determination of the same by 115th day of the insolvency commencement date.
The amended Regulations also addresses the lack of clarity in terms of criteria and a general lack of standardization, which was prevalent in terms of an Invitation for Expression of Interest and a Resolution Plan. The amendments aims to fill in those gaps by providing a mandatory criteria and standardized procedure, for invitation for expression of interest and resolution plans across the board.
Form G has been revised, for the purposes of inviting an expression of interest, which must be now be mandatorily published in newspapers apart from being uploaded on the website of the corporate debtor, by the 75th day from the insolvency commencement date. A minimum of 30 days must be provided for submission of a resolution plan once prospective resolution applicants have been identified. Additionally, it is now mandatory for a resolution plan to provide for details in each step in the process, and the manner and purposes of interaction between the resolution professional and the resolution applicant, along with corresponding timelines.
It was noticed that since there was less clarity on the set issues that resolution plans have to address, the proposals within resolution plans as submitted by resolution applicant were often unsubstantiated. In this regards the amendment provides that the Resolution Professional has to issue Request for Resolution Plan along with the information memorandum and the evaluation matrix, once eligible prospective resolution professionals have been identified. The Request for Resolution Plan must detail each step in the process, and the manner in and purposes of the interaction between the resolution professional and the prospective resolution applicant along with corresponding timelines.
The amendment mandates that a Resolution Plan has to demonstrate that:
(i) it addresses the cause of default
(ii) it is feasible and viable
(iii) it has provisions for its effective implementation
(iv) it has provisions for approvals required and the timeline for the same (v) the resolution applicant has the capacity to implement the resolution plan. The Resolution Plans will have to be tested by the COC strictly on the evaluation matrix.
The amendment provides for streamlining procedure for prospective resolution applicants to submit an expression of interest and further a resolution plan, ensures that there is certain standardization in the CIRP as a whole. This is a welcome step as, these amendments are aimed at ensuring maximum compliance with the Code and effectively resolving bankruptcy of a corporate debtor, which is the essence of the Code.
Now that Home Buyers stand on the same footing as financial creditors, the amendment addresses the practical difficulties arising from having a large number of creditors form a part of the COC. The amended norms allow a class of creditors to be represented by a Resolution Professional where such a class of creditors has 10 or more creditors in it. The voting share of a creditor in a class shall be in proportion to the financial debt which includes an annual 8% interest rate, unless a different rate of interest is provided.
In its essence, the recent amendment intends to aid the everyday smooth functioning of the Code. Amendments to the Regulations have been made, keeping in view the June amendment to the Code. While, the amendment has its heart in the right place and reinforces the idea of timely and effective resolution of bankruptcy of corporates, it is yet to be seen how the courts, which have been very generous in granting extensions of timelines, adhere to the new model timeline.