IBBI Attempts At Making Acquisition Of Distressed Assets Attractive

IBBI amends CIRP regulations, aims at improving information flow and making the resolution process transparent.

<div class="paragraphs"><p>The entrance of the Mumbai bench of the National Company Law Tribunal. (Source: BQ Prime)</p></div>
The entrance of the Mumbai bench of the National Company Law Tribunal. (Source: BQ Prime)

The Insolvency and Bankruptcy Board of India has introduced amendments to the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

It aims to provide an impetus to better market-led solutions and imbibe informational symmetry and transparency to the insolvency resolution process.

The amendment makes it mandatory for the resolution professional to seek claims from all known creditors of the company. It further mandates that all details of avoidance of transaction application be made available to resolution applicants.

The amendment also changes the timeline for submission of information memorandum. Finally, the amendment allows the Committee of Creditors to explore other options during liquidation.

The amendments 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.
Gaurav Gupte, Partner, Cyril Amarchand Mangaldas

The amendment now requires that the resolution professional must actively seek claims from known creditors on the basis of the company's book of accounts.

This will create a clearer picture of the total debt at any earlier stage and reduce chances of significant variations at a later stage in the process for the resolution applicants, Gupte said.

Secondly, the bankruptcy regulator mandates that the details of applications filed for avoidance of transactions should be made available to resolution applicants prior to submission of resolutions plans.

By allowing the resolution professional to share the details of the avoidance application with the potential resolution applicants, it will facilitate value discovery, said Divyanshu Pandey, partner, S&R Associates.

This also plugs a loophole which was introduced by the third amendment requiring the PRAs to provide for measures for dealing with avoidance transactions, he said.

The amendment also changes the timeline for submission of information memorandum. It mandates that the information memorandum should include details such as company operations, financial statements, contingent liabilities, geographical coordinates of fixed assets, and company overview, among other things.

According to Nirav Shah, partner at DSK Legal, the memorandum shall now include the details of business evolution for corporate debtors with asset size of more than Rs 100 crore.

The information ought to entail contingent liabilities, with the intention that these additional details may help prospective bidders assess the value of the corporate debtor’s assets more accurately, said Aparna Ravi, partner at Samvad Partners.

These changes are aimed at improving information availability to all the stakeholders of the corporate debtor.
Nirav Shah, Partner, DSK Legal

The amendment further provides for marketing of assets in the absence of an approved resolution plan. The resolution professional can do this with the approval of the Committee of Creditors, said Gupte of Cyril Amarchand Mangaldas.

The resolution professional shall accordingly develop a strategy for marketing the assets in such instances, and in cases where the value of the corporate debtor’s assets exceeds Rs 100 crore, said Ravi of Samvad Partners.

IBBI has recognised and facilitated meaningful resolution by allowing disposal of one or more assets of the corporate debtor if no resolution plans are received.
Divyanshu Pandey, Partner, S&R Associates

Finally, the amendment enables the Committee of Creditors to examine whether it wants to explore options of compromise or arrangement and file such a recommendation with the National Company Law Tribunal at the time of applying for the liquidation order.

It also introduces guiding factors that may be considered by the CoC while making an early decision to liquidate the corporate debtor, reasons for which have to be recorded and presented to the adjudicating authority as part of the application for liquidation.

Shah said that in cases where the committee decides so, it should explore the option while the order for liquidation is awaited. The aim is to reduce delays in the process and enhance efficiency, he said.

However, the liquidation process regulations make clear that any person who is not eligible to submit a resolution plan, under Section 29A of the IBC, may not be a party to a scheme or compromise agreement, said Ravi.

The amendments generally allow for more opportunities for resolution or continuation of the corporate debtor as a going concern, but don’t necessarily provide a long rope to promoters where they would otherwise be restricted under the IBC.
Aparna Ravi, Partner, Samvad Partners

According to Ravi, these amendments are a step in the right direction for bringing about greater transparency and flexibility in the resolution process.

However, the elephant in the room remains the sub-par functioning of the tribunals, which have been beset by tremendous delays, Ravi said. Without addressing this issue, the efforts of the regulator to improve the resolution process might be in vain.

Moreover, there is a need to address some threshold issues to boost the confidence of stakeholders regarding the IBC and, of course, strengthening the institutional capacity at the NCLT, Gupte said.

These issues arise out of the Supreme Court judgements in the matter of Vidarbha Industries (regarding admission of cases) and Rainbow Papers (on claims from tax authorities), he said.