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The Regulations regarding corporate insolvency proceedings amended by the IBBI

The Regulations regarding corporate insolvency proceedings amended by the IBBI

The Insolvency and Bankruptcy Board of India (IBBI) had amended Regulations regarding corporate insolvency proceedings which came to be recognized as the Insolvency and Bankruptcy Board of India (Liquidation Process) (Fourth Amendment) Regulations, 2020.

The IBBI had stated that the Insolvency and Bankruptcy Code has envisaged early closure of the liquidation procedure so that the assets of the debtor are released for alternative usage expeditiously.


The Insolvency and Bankruptcy Code, 2016 (Code) had enabled a financial creditor (FC), amongst others, in order to initiate a corporate insolvency resolution process (CIRP) against a corporate debtor (CD). The financial creditor, together with the application, must furnish a “record of the default recorded with the information utility or such other record or evidence of default as may be specified”. While exercising this power, the Insolvency and Bankruptcy Board of India had amended the Regulations and laid down two ‘other record or evidence of default’, that is, certified copy of entries in the relevant account in the bankers’ book, and order of a court or order of a tribunal that has given upon the non-payment of a debt.

The Code defined the financial information to mean some records and ‘such other information as may be specified’. While exercising this power, the IBBI had amended the Regulations towards specifying public announcement made under the Code as financial information. It directed the Information Utilities in distributing the public announcement towards its registered users, who are creditors of the corporate debtor experiencing insolvency proceeding. This is additionally in the direction of publishing the public announcement in the newspapers as well as websites as needed in the Regulations.

The Regulations provided that the Interim Resolution Professional (IRP) / Resolution Professional (RP) shall authenticate every claim and consequently maintain a list of creditors and also update it. The person is required to file the creditor's list with the Adjudicating Authority (AA) as well as display it on the website, if any, of the corporate debtor. The IBBI had amended the Regulations to necessitate the Resolution Professional / Resolution Professional towards submitting the list of creditors on an electronic medium for dissemination on its website. This would enhance transparency and allow stakeholders to determine the details of their claims at a central place.

The resolution plan provides payment of debts towards the creditors of the corporate debtor. However, for transparency, the IBBI had amended the Regulations to necessitate the Resolution Professional to close each claimant the principle or methods for payment of debts under a resolution plan, within 15 days of the order of the Adjudicating Authority approving such resolution plan.

The Code predicted early closure of liquidation procedure so that the corporate debtor assets are released for alternate usages expeditiously. Though, the procedure takes longer where the liquidation estate comprises a ‘not readily realizable asset’. Towards facilitating quick closure of the liquidation procedure, the IBBI had amended the Regulations to allow the liquidator to assign or transfer a ‘not readily realizable asset’ to any individual in consultation with the stakeholders’ consultation committee. For this purpose, “not readily realizable asset” includes any asset comprised in the liquidation estate which can not be sold through available opportunities and includes contingent or disputed assets, as well as assets underlying proceedings for preferential, undervalued, extortionate credit and deceitful transactions. Therefore, a liquidator must attempt to sell the assets in the first place, failing which he might assign or transfer an asset to any individual, in consultation with the stakeholders’ consultation committee, and failing which he might allocate the undisposed of assets among stakeholders, with the support of the Adjudicating Authority.

There could be a creditor who might not be willing to wait for the completion of the liquidation procedure for the realization of his debt. The IBBI had amended the Regulations to allow a creditor to assign or transfer the debt owing to it to any other individual according to the laws for the time being effective dealing with such assignment or transfer.

Conclusion: 

The Insolvency and Bankruptcy Board of India (IBBI) is the main institution in implementing the Insolvency and Bankruptcy Code

Therefore, the IBBI had made these changes in some regulations to make the liquidation procedure, information utilities, and resolution procedure faster for the corporates. The amended regulations are effective from 13th November 2020

Author:

eStartIndia Team



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