In a significant push to accelerate the resolution of defaulting companies, the Insolvency and Bankruptcy Board of India (IBBI) has unveiled a series of draft regulations. These proposals follow the recent passage of the Insolvency and Bankruptcy Code (IBC) Amendment Bill, which received presidential assent on April 6.
Streamlining Creditor-Initiated Resolution
The core of the new framework is a more efficient creditor-initiated insolvency resolution process (CIIRP). Under these proposed rules, clear and significantly shorter timelines have been established for various stages:
- Corporate debtors must respond to a lender's notice to initiate CIIRP within 30 days.
- Lenders are given 50 days to invite new bids for the company.
- Potential investors then have 15 days to submit their resolution plans.
- Once approved by the committee of creditors, the resolution plan must be submitted to the National Company Law Tribunal within 120 days.
Crucially, the entire resolution plan must be approved within 150 days, with a potential extension of 45 days. This marks a substantial reduction from the current 330-day limit under the corporate insolvency resolution process (CIRP).
Key Changes and Objectives
To initiate a CIIRP, financial creditors will now need the approval of at least 51% in value of the debt owed to eligible financial creditors. A notable aspect of the new framework is that the corporate debtor will retain management control throughout the resolution process, albeit under strict scrutiny from 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 IBBI stated.
New Exit for Voluntary Liquidation and Enhanced Disclosure
The Amendment Act also introduces a much-needed exit mechanism for voluntary liquidation proceedings. Previously, a corporate entity entering voluntary liquidation had no regulatory path to terminate the process, even if circumstances changed, such as a new business opportunity emerging.
Furthermore, personal guarantors to corporate debtors will face more stringent disclosure requirements. Along with the insolvency resolution application, a complete statement of all assets must be submitted with supporting evidence. This includes detailed information on cash, bank deposits, commercial assets, domestic and overseas investments in financial instruments like equity, bonds, mutual funds, property, provident fund assets, and even virtual digital assets and cryptocurrencies.
Stakeholders have until April 28 to submit their feedback and comments on these draft proposals.