How the Insolvency code is evolving, and resolutions could be faster under new proposals

In a move that could speed up the insolvency process for defaulting companies, the Insolvency and Bankruptcy Board of India (IBBI) has published a series of discussion papers.   The Parliament recently passed the Insolvency and Bankruptcy Code (IBC) Amendment Bill. It received the President's assent on April 6. The resolutions proposed by the IBBI are aimed at aligning with the amended IBC.    As per the draft regulations issued by IBBI, clear timelines have been specified for various stages of the creditor-initiated insolvency resolution process (CIIRP). Also, the financial creditor intending to initiate CIIRP will need to obtain approval of at least 51% in value of the debt due to such eligible financial creditors. The guarantors will also have to provide a more detailed list of assets. 

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The corporate debtor must respond to the lender's notice to initiate CIIRP proceedings within 30 days.  The lenders have 50 days to call new bids, and potential investors in the company have another 15 days to submit their plans.  Once cleared by the committee of creditors, the resolution plan must be submitted to the National Company Law Tribunal within 120 days. Further, the resolution plan has to be approved within 150 days. This can be further extended by 45 days.    This timeline is significantly shorter than the current limit of 330 days under the corporate insolvency resolution process.  Importantly, the corporate debtor will retain management control through the resolution process, although it will be scrutinised by the committee of creditors. 

"The CIIRP framework is premised on four core objectives: enabling creditor-led early intervention after default; preserving management control of the corporate debtor subject to appropriate oversight; providing a structured, time-bound pathway to a commercially viable resolution plan; and facilitating seamless conversion to the Corporate Insolvency Resolution Process (CIRP) where the CIIRP does not yield resolution within prescribed timelines or in certain other specified circumstances, " the IBBA said. 

Voluntary Liquidation exit

A corporate person, once entering voluntary liquidation, had no regulatory pathway to exit the process, even where circumstances changed. For instance, a business opportunity may have emerged, which would have rendered the liquidation unwarranted. 

The existing regulations had no mechanism for terminating a voluntary liquidation proceeding once commenced, before dissolution. 

The Amendment Act introduces a new exit mechanism for voluntary liquidation proceedings to address situations where continuing the process is no longer commercially or legally appropriate. 

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Detailed disclosure of assets

Now, along with the application for initiating the insolvency resolution process to be submitted to the Adjudicating Authority, a complete statement of all assets will also have to be submitted with supporting evidence by personal guarantors to corporate debtors. 

This includes cash and bank deposits, commercial assets, investments made in India and overseas in financial instruments like equity, bonds, mutual funds, property and provident fund assets. Even details on virtual digital assets, cryptocurrencies, will have to be submitted. 

The stakeholders have to submit their views and comments on the draft by April 28.