IBBI proposes fresh changes to make corporate insolvency resolution process faster, efficient

In a bid to make the corporate insolvency resolution process more efficient and time bound, the Insolvency and Bankruptcy Board of India (IBBI) has proposed fresh changes such as holding monthly meetings of the Committee of Creditors and structuring the resolution plan to provide complete information and changes in the valuation methodology. 

In a discussion paper on Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Process) Regulations, 2016, the IBBI has proposed amendments to six aspects of the corporate insolvency resolution process based on the experience over the last six years, many of which has resulted in extended litigation. The IBBI has sought public comments on these by November 22. 

Experts believe the proposals, if they go through would bring comprehensive changes to make the mechanism robust, more effective and efficient while removing the existing shortcomings in the system. 

Sudhir Chandi, Partner. Resurgent Resolution Professional LLP noted that despite several amendments in the mechanism since its inception in 2016, the existing corporate resolution process is still beset with undue delays, protected litigations and a lack of transparency and clarity on several issues. “In addition, the huge haircuts involved in many cases is also a subject matter of criticism in several quarters,” he said. 

To lessen the probability of disputes, the IBBI has proposed that the valuers should explain the valuation methodology to the CoC before finalisation of valuation report. At present, the valuation report is disseminated to the CoC only after the reception of resolution plans. 

“Consequently, until this juncture, the CoC possesses a restricted understanding of pivotal valuations, namely the Fair Value and Liquidation Value,” said the discussion paper. The unavailability of this information constrains the CoC's decisions regarding the eligibility criteria for resolution applicants and the evaluation matrix. 

Further, to streamline the resolutions and prevent delay in the implementation of the resolution plan, the IBBI has proposed that the resolution plan may be structured in two parts – one that would deal with the payments or inflows under the resolution plan while the second part would deal with distribution to the various stakeholders. “In case of any dispute or litigation, the disputed amount may be kept in an escrow account and be distributed after the litigation in respect of distribution attains finality,” it further said. 

The paper has also proposed providing clarity in terms of minimum entitlement to dissenting financial creditors. 

Amongst the proposals, the IBBI has also mooted that the insolvency professional (IP) should seek approval of all components of the insolvency resolution process cost, including the expenditure incurred for ongoing operations of the CD. 

Further, to ensure that the resolution process remains time bound, even if not within the 180 day timeline, it has suggested that the RP should hold regular meetings of the Committee of Creditors (CoC) every month. “Observations from some ongoing CIRP cases highlight substantial gaps in the scheduling meetings of CoC,” it said, noting that prolonged gaps between meetings result in delayed decisions, stalling the momentum of the resolution process. 

To ensure that the resolution process does not stop without approval for an extension beyond 180 days, the IBBI has also proposed that the RP should continue the work for the period when the application seeking extension of the insolvency resolution process is filed till it is decided by the Adjudicating Authority. 

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