Note on changes to the CIRP and the liquidation process
The Insolvency and Bankruptcy Board of India (IBBI) published working papers soliciting comments on issues relating to the corporate insolvency resolution process (CIRP working document) and the liquidation process (Liquidation Discussion Paper) on August 27, 2021. On September 30, 2021, the IBBI introduced changes to the IBBI (Resolution Process for Corporate Persons) regulation, 2016 (CIRP regulations) and the IBBI Regulation (Liquidation Process), 2016 (Liquidation regulations).
The main changes introduced under the CIRP Regulations and the Liquidation Regulations are mentioned below:
1. CIRP regulations
(i) The CIRP Regulation now mandates the members of the creditors’ committee (CoC) to carry out their functions in accordance with guidelines to be issued by the IBBI to increase the accountability and accountability of the CoC and to ensure transparency in its operation.
(ii) The CIRP Rules have not prescribed or limited the number of times that an invitation to express the interest of resolution seekers in submitting a resolution plan has been authorized by the resolution professional. Under the terms of this addendum, such a modification to the call for expressions of interest can only be made once. Likewise, the resolution professional can now only modify the resolution requesters request for resolution once.
(iii) In addition, the amendment also limited the number of times a resolution plan can be changed. The CIRP Regulations now provide that a resolution professional can only authorize the modification of a resolution plan once. The resolution professional may use a challenge mechanism to enable improvement of resolution plans to pursue the goal of maximizing value.
(iv) In order to address the issue of delays during the corporate insolvency resolution process, the CIRP Regulation now prevents the CoC from reviewing resolution plans that are received after the prescribed deadlines or received from a person outside of the final list of potential resolution candidates or who is not in accordance with the law.
2. Liquidation regulations
(i) Under the Liquidation Regulations, a stakeholder consultation committee (CSC) must be incorporated by the liquidator with respect to the sale of the assets of the debtor company. In the liquidation discussion paper, it was proposed that the liquidator consult with the CSC for all important steps related to the liquidation process. In accordance with the proposal, the Liquidation Regulations have now been amended to provide that the SCC may advise the liquidator on matters relating to the sale of assets, including the mode of sale, pre-offer qualifications, reserve price, the amount of the deposit and marketing. strategy.
(ii) In addition, the liquidation discussion paper also highlighted the problem faced by stakeholders when setting up the SCC, where the regulatory framework did not provide specific criteria and procedure for the appointment of representatives. by stakeholders. The liquidation discussion paper noted that stakeholders face deadlock situations due to (a) disagreement between the criteria to be followed for the appointment, i.e. the number of applicants or the value of requests; and (b) the non-participation of some stakeholders in the nomination process. The amendment has now clarified that in the event of failure of the nomination of representatives by a stakeholder, these representatives must be chosen by a majority of the voting shares of the stakeholder category, present and voting.
(iii) The amendment introduced certain conditions regarding participation fees and deposit deposit requirements when selling assets by the liquidator. Now, under the Liquidation Regulations, the liquidator cannot require a deposit or a non-refundable fee to participate in an auction. In addition, the amendment also stipulates that the deposit deposit must not exceed 10% of the reserve price.
(iv) The liquidator is now required to state the reasons in the following circumstances, in the next progress report: a) does not follow any advice given by the SCC and b) rejects the highest bid in the process of adjudication.
The amendments to the CIRP Regulations and the Liquidation Regulations appear to have resolved the issues faced by stakeholders during the process of resolving and liquidating a company’s insolvency respectively and streamlined them in accordance with the subject of the Insolvency and Bankruptcy Code, 2016 (Coded). The CoC conduct amendment reiterates that all decisions must comply with the Code. In addition, the Liquidation Regulations now specify that priority is given to stakeholders with the highest claim. It should also be noted that the IBBI published a circular dated September 30, 2021 establishing a centralized electronic platform for listing public notices of liquidation of assets. This is in addition to other modes of publication specified under the Winding-up Regulations. Liquidators are now invited to download the public notice of each auction of any asset in liquidation with effect from October 1, 2021 at www.ibbi.gov.in through their designated login page. This can increase and encourage the participation of more bidders in the auction process.