India: Regulatory Updates

AMENDMENT TO INSOLVENCY RESOLUTION PROCESS FOR CORPORATE PERSONS REGULATION, 2016:

On 31st December 2017, The Insolvency and Bankruptcy Board of India ("IBBI/the Board") has amended Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

IBBI has substituted the definition of "dissenting financial creditor". Now the dissenting financial creditor also includes financial creditor abstained from voting for the resolution plan, approved by the committee.

IBBI has amended sub clause (3) of the Regulation 35, stating that the Resolution Professional will provide the liquidation value to every member of the committee in electronic form, on receiving an undertaking from the member to the effect that such member shall maintain confidentiality of the liquidation value. IBBI has inserted Sub clause (4) in the Regulation 35 stating that Resolution professional will also maintain the confidentiality of the liquidation value.

The IBBI has made one more amended to the Regulation 39 stating that now the resolution applicant has to submit the resolution plan within the given time frame in the invitation made under clause (h) of the section 25(2)

  • Same above amendment has been made to Insolvency and Bankruptcy Board of India (Fast Track Insolvency Process for Corporate Person) Regulations 2017.

CIRCULAR NO. IP/001/2018 ON INSOLVENCY PROFESSIONAL TO USE REGISTRATION NUMBER AND REGISTERED ADDRESS IN ALL HIS COMMUNICATION:

On 3rd January 2018, the Board has directed that the Insolvency Professional in all his communications, whether by way of public announcement or otherwise to a stakeholder or to an authority, shall prominently state: (i) his name, address and email, as registered with the IBBI, (ii) his Registration Number as an insolvency professional granted by the IBBI, and (iii) the capacity in which he is communicating, instead of using different addresses and emails while communicating with the stakeholders.

CIRCULAR NO. IP/002/2018 ON INSOLVENCY PROFESSIONAL TO ENSURE COMPLIANCE WITH PROVISION OF THE APPLICABLE LAWS:

On 3rd January 2018, the board has directed that while acting as an Interim Resolution Professional, a Resolution Professional, or a Liquidator for a Corporate Person under the Code, Insolvency Professional shall exercise reasonable care and diligence and take all necessary steps to ensure that the corporate person undergoing any process under the Code complies with the applicable laws.

It is further clarified that if a corporate person suffers any loss, including penalty, if any, on account of noncompliance of any provision of the applicable laws, such loss shall not form part of insolvency resolution process cost or liquidation process cost under the Code and Insolvency professional will be responsible for the non-compliance of the provision of the applicable laws.

CIRCULAR NO. IP/003/2018 ON INSOLVENCY PROFESSIONAL NOT TO OUTSOURCE HIS RESPONSIBILITIES:

The board vide its circular dated 03.01.2018 had directed that an insolvency resolution professional shall not outsource any of his duties and responsibilities under the Code. It was the board's observation that a few insolvency professionals are advising the prospective resolution applicants to submit a certificate from another person to the effect that they are eligible to be the resolution applicant. This requirement amounts to outsourcing responsibilities of an insolvency professional to another person.

CIRCULAR NO. IP/004/2018 ON FEES PAYABLE TO AN INSOLVENCY PROFESSIONAL AND TO OTHER PROFESSIONALS APPOINTED AN INSOLVENCY PROFESSIONAL.

The board vide its circular dated 16.01.2018 had clarified that for calculating the Insolvency Resolution Process Cost under Regulation 31 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, the fees payable to the person acting as a resolution professional will only be included that is the fees defined under Section 5(13) of Insolvency and Bankruptcy Code 2016 (the Code). The fees w.r.t other professionals appointed by Insolvency Resolution Professional shall not form part of the insolvency resolution process cost. Such other professionals appointed by an insolvency professional shall raise bills/invoices in his/its name towards such fees and such fees shall be paid to his/its bank account.

Furthermore, it is also again clarified that an insolvency professional shall render services for a fee which is a reasonable reflection of his work, raise bills/invoices in his name towards such fees, and such fees shall be paid to his bank account.

CIRCULAR NO. IP/005/2018 W.R.T DISCLOSURES TO BE MADE BY INSOLVENCY PROFESSIONAL AND OTHER PROFESSIONALS APPOINTED BY INSOLVENCY PROFESSIONALS CONDUCTING RESOLUTION PROCESSES.

The Board vide circular dated 16.01.2018 clarified that in the interest of transparency to be followed by Insolvency Professional it has been decided that that Insolvency Professional as well as every professional appointed by insolvency professional for a resolution process shall make the following disclosures along with time lines to the Insolvency Professional Agency:

i. By an Insolvency Professional to the Insolvency Professional Agency of which he is a member:

Disclosure to be made within three (3) days of Relationship of   the I n s o l v e n c y Professional with
appointment of Insolvency Professional. corporate Debtor
appointment of the other professional. other professionals (Registered Valuer(s)/ Accountant(s)/Legal Professional(s)/Other Professinal(s)) as appointed by him
the constitution of Committee of Creditors Financial Creditor(s)
the agreement with the Interim finance provider(s). Interim Finance Provider(s)
the supply of information memorandum to the prospective resolution applicant. P r o s p e c t i v e r e s o l u t i o n applicant(s)
of such notice or arising If relationship with any of the above comes to notice or arises subsequently.

ii. An insolvency professional shall ensure disclosure of the relationship, if any, of the other professional(s) engaged by him to the Insolvency Professional Agency.

Disclosure to be made within three (3) days of Relationship of  the  I n s o l v e n c y Professional with
appointment of the other Professional. The insolvency professional
appointment of the other professional. Corporate Debtor
The constitution of Committee of Creditors Financial Creditor(s)
the agreement with the Interim finance provider(s) or three days of the appointment of the other Professional, whichever is later. Interim Finance Provider(s)
the supply of information memorandum to the prospective resolution applicant three days of the appointment of the other Professional, whichever is later. P r o s p e c t i v e r e s o l u t i o n applicant(s)
of such notice or arising If relationship with any of the above comes to notice or arises subsequently.

The term "relationship" has also been defined in the circular by the Board. As per the same said circular "relationship" mean any one or more of the four kinds of relationships at any time or during the three years preceding the appointment:

  1. Where the Insolvency Professional or the other Professional, has derived 5% or more of his/its gross revenue in a year from professional services to the related party;
  2. Where the Insolvency Professional or the other Professional, has been a Shareholder, Director, Key Managerial Personnel or Partner of the related party;
  3. Where a relative (Spouse, Parents, Parents of Spouse, Sibling of Self and Spouse, and Children) of the Insolvency Professional or the other Professional, as the case may be, has a relationship of Kind A or B above with the related party;
  4. Where the Insolvency Professional or the Other Professional, as the case may be, is a partner or director of a company, firm or LLP, such as, an Insolvency Professional Entity or Registered Valuer, the relationship of kind A, B or C of every partner or director of such company, firm or LLP with the related party.

Further, the Insolvency Professional Agency shall disseminate such disclosures on its website within three (3) working days of receipt of the disclosure. The Insolvency Professional shall provide a confirmation to the Insolvency Professional Agency that the appointment of every other professional has been made at arm's length relationship.

The disclosures provided above needs to be made for ongoing resolution processes also and the due date for the ongoing processes was 31.01.2018.

It is to be noted that as per the circular any wrong disclosure or delay disclosure shall attract action against the Insolvency Professional and the other professional as per the provisions of the law.

RELAXATION IN THE PROVISIONS W.R.T LEVY OF MINIMUM ALTERNATE TAX (MAT)

The Central Board of Direct Taxes have issued a circular

w.r.t relaxation of norms relating to Minimum Alternate Tax (MAT) for the Corporate Debtors against whom the Corporate Insolvency Resolution Process (CIRP) has been initiated under Section 7 (by Financial Creditors) or under Section 9 (by Operational Creditors) of Insolvency and Bankruptcy Code. At the moment, the relaxation is w.r.t Financial Year 2017-18 (Assessment Year 2018-19)

AMENDMENT IN COMPANIES ACT, 2013 VIS A VIS INSOLVENCY AND BANKRUPTCY CODE, 2016

The Central Government had notified the Companies (Amendment) Act, 2017 (Amendment Act) on 3rd January 2018 wherein the following sections of the Companies Act, 2013 have been amended to accommodate the requirements of Insolvency and Bankruptcy Code 2016:

  • Section 53: Section 53 of Companies Act, 2013 deals with prohibition on issuance of shares at discount. The amendment now allows the companies to issue their shares at discount to its creditors when their debts are been converted into equity pursuance to any statutory resolution plan (under IBC or any debt restructuring scheme of RBI);
  • Section 197: Section 197 of Companies Act, 2013 deals with overall maximum managerial remuneration and managerial remuneration in case of absence or inadequacy of profits. As per the Section the approval of shareholders in the general meeting of the Company is case the managerial remuneration is exceeded beyond 11% of the net profits. The amendment now allows that the companies who have defaulted in payment of dues to any bank or public financial institution or nonconvertible debenture holders or any other secured creditor, will now have to take prior approval of such lenders for payment of managerial remuneration. The approval from lenders needs to be taken prior to the approval of shareholders in general meeting.
  • Section 247: Section 247 of Companies Act, 2013 deals with Valuation by registered valuers, Further the section bars a registered valuer from undertaking valuation of any assets in which he has a direct or indirect interest or becomes so interested at any time during or after the valuation of assets. The amendment now prohibits a registered valuer from undertaking the assignment of valuation of assets in which he has direct or indirect interest or becomes so interested at any time during the three years prior to his appointment as valuer or three years after valuation of assets was conducted by such valuer.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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