The Amendment Regulations are applicable to corporate insolvency
resolution processes (CIRPs) commencing on or
after the date of their notification (i.e. 4 July 2018). Therefore,
ongoing CIRPs that have commenced prior to 4 July 2018 will
continue to be governed by the provisions of the unamended CIRP
Regulations.
Amendment |
Particulars |
Implications |
Withdrawal of IBC
proceedings |
- CIRP Regulations have been amended to set out the procedure for
withdrawal of IBC proceedings, which was first introduced in the
Ordinance.
- The applicant who filed the application for initiation of CIRP,
must file the withdrawal application with the interim resolution
professional (IRP) /resolution professional
(RP), before issuance of invitation for expression
of interest (EOI) by the RP. This withdrawal
application is required to be accompanied by a bank guarantee
towards the estimated expenses incurred by the IRP and RP
(Withdrawal BG).
- The IRP/ RP is then required to forward the withdrawal
application to the Committee of Creditors (COC)
which must decide on the application in a time-bound manner.
- If the withdrawal application is approved by the COC with 90%
voting share, the RP must submit the withdrawal application before
the National Company Law Tribunal (NCLT) who
may approve the withdrawal application.
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- The Amendment Regulations clarify that a withdrawal application
may only be filed before the issuance of invitation for EOI. This
provides deal certainty for prospective bidders since they will not
have to bear the risk of a withdrawal of the IBC proceedings after
substantial time, effort and costs have been expended for
undertaking the acquisition.
- The Amendment Regulations have clarified that withdrawal can
only be initiated by the applicant who initiated the CIRP. This may
result in the initiator of the CIRP "holding out" for a
better recovery even if 90% of the COC are willing to withdraw.
However, initiators must take note of the new requirement that they
must also supply the Withdrawal BG.
- The Amendment Regulations do not clarify the grounds on which
the NCLT may refuse withdrawal. Accordingly, we will need to await
judgments on this issue to understand the NCLT's views on this
point.
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Authorised
Representative |
- The Ordinance provided for appointment of an authorised
representative for any class of creditors exceeding the number
prescribed. This number has been set in the Amendment Regulations
at ten.
- Voting share of a financial creditor in a class is in
proportion to the financial debt (at 8% p.a. interest unless a
different rate has been agreed to).
- The IRP is required to examine the corporate debtor's books
of accounts and records to ascertain the classes of creditors and
mention the classes in the public announcement inviting claims
(PA) to be issued within three days of his
appointment.
- The IRP is required to identify three insolvency professionals
(IP) to act as authorised representatives for
financial creditors in each class and mention their names in the
PA. A creditor in a class must indicate his choice of IP from
amongst the three alternatives while submitting his claim. The IRP
is then required to select the IP who is the choice of the highest
number of financial creditors in the class to act as the authorised
representative of that class.
- Delay in appointment of the authorised representative will not
affect the validity of any decision taken by the COC.
- The fee payable to the authorised representatives has been
prescribed. Such fee along with the authorised representative's
out of pocket expenses form part of the insolvency resolution
process costs (IRP Costs).
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- Pursuant to IBBI's circular dated 13 July 2018, in any CIRP
where approval of the resolution plan by the COC is at least
fifteen days away, the RP is required to obtain the choice of the
IP from creditors in a class, to act as their authorised
representative. Therefore, representation through financial
creditors in such cases is immediately effective.
- Neither the Ordinance nor the Amendment Regulations have
defined the term "class". Although, it appears from the
Ordinance that the mechanism for authorised representative was
intended for home allottees only, the use of the term
"class" has given it wider import. In the absence of this
definition, it is not clear if an authorised representative will
also need to be appointed to represent other creditors (e.g.
secured creditors, commercial paper holders, etc).
- IRPs may find it difficult to ascertain classes of creditor
within three days of their appointment, as mandated.
- The Amendment Regulations do not include a requirement on the
IRP to provide the rationale for shortlisting the IPs mentioned in
the PA. However, we expect that practically, IRPs may provide such
rationale in order to assist the financial creditors in making
their choice.
- Given that the Amendment Regulations prescribe the fees that
may be charged by the authorized representative, it remains to be
seen whether a deep and viable market for authorized
representatives is formed.
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Timeline for submission
of claims |
The last date for
submission of a claim by a creditor has been changed to the
ninetieth day after the insolvency commencement date. Previously,
creditors were allowed to submit claims until the approval of the
plan by the COC. |
This change is
beneficial to resolution applicants since the liabilities of the
corporate debtors will be crystallized well ahead of any resolution
plan approval. However, ideally the Amendment Regulations should
have also clarified the status of creditors who file claims post
this deadline. |
Revised Procedure under
CIRP |
- The Amendment Regulations have prescribed a detailed procedure
for identification of resolution applicants and approval of the
plan. Set out below are the key changes.
EOI Stage
- EOI submitted by bidders must now be unconditional.
- Any EOI received after the deadline must be rejected.
- The Amendment Regulations clarify that RP cannot ask for any
fee or non-refundable deposit along with the EOI.
- The EOI must be accompanied by specified documents including
undertakings regarding Section 29A compliance, eligibility to
submit EOI, accuracy and veracity of information provided and
confidentiality and relevant records and information to enable
assessment of Section 29A compliance.
- The RP must conduct due diligence to ensure bidders'
compliance with Section 29A and COC's eligibility criteria
based on the material on record.
- Within the specified time period after receipt of EOIs, the RP
is required to issue a provisional list of eligible resolution
applicants to the COC and all prospective resolution
applicants. Objections to inclusion or exclusion of a
prospective bidder from such list may be made along with supporting
documents within a prescribed time-period.
Resolution Plan Stage
- The request for resolution plan (Request) must
allow at least thirty days for plan submission. Any modification in
the Request or the evaluation matrix is deemed to be a fresh issue
and submission of the resolution plan pursuant to such modified
Request or evaluation matrix will be subject to the above thirty
day timeline.
- The RP may, with COC approval, re-issue the Request if the
plans received in response to an earlier Request are not
satisfactory. Such revised Request must be made to all prospective
resolution applicants in the final list.
- COC must evaluate resolution plans strictly as per the
evaluation matrix to identify the best resolution plan.
- Reasons for approving or rejecting a resolution plan must be
recorded.
- The RP must submit a compliance certificate to the NCLT (in the
prescribed format) along with the COC-approved resolution
plan.
Timeline
- The Amendment Regulations have prescribed a model timeline, to
ensure that every CIRP is completed within one hundred and eighty
days. This model timeline, along with a comparison against
timelines applicable prior to the notification of the Amendment
Regulations, is set out in Exhibit
A.
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- It appears odd to suggest that an EOI must be
"unconditional" given that at this stage only basic
information about the corporate debtor would have been provided to
prospective resolution applicants. Quite typically, at an EOI stage
resolution applicants would require further financial modelling to
arrive at a resolution package that is sustainable for the
corporate debtor and its stakeholders.
- It appears that a bidder is not eligible to enter the bid
process after the EOI deadline. This condition may simplify the bid
process and bring greater certainty but appears contrary to recent
judgments which have allowed late bidders on the grounds that the
IBC is meant to maximise recovery in the hands of stakeholders. How
courts and stakeholders apply these new norms will remain to be
seen.
- The exhaustive "connected persons" disclosure under
Regulation 38(3) has been replaced by a Section 29A affidavit and
by empowering RPs to seek clarification, information and documents.
It remains to be seen whether RPs will continue to ask for
information in the nature of the erstwhile Regulation 38(3)
disclosure. Furthermore, the judgment in Essar Steel
established that the COC needs to determine eligibility of a
resolution applicant. The Amendment Regulations appear to indicate
otherwise. Market practice is likely to continue to be that the COC
will take the final decision on eligibility. If this remains the
case then all information provided by prospective resolution
applicants (or at least the successful resolution applicant) to
satisfy the RP of its Section 29A eligibility will get shared with
the COC. In the case of real estate companies, since the COC will
also now include allottees, resolution applicants' group
structures and other information may well become widely
circulated.
- Sharing the list of provisional resolution applicants with all
resolution applicants will ensure transparency and fairness. The
provisions for objections are probably intended to decrease the
volume of "Section 29A eligibility" litigations presently
slowing down the resolution process. The timelines imposed on RPs
to prepare the provisional list of resolution applicants and to
decide on objections appear challenging particularly given the wide
ambit of Section 29A. However, if properly implemented, this should
result in a faster and more streamlined resolution process.
- The Amendment Regulations appear to indicate that the
undertaking accompanying the EOI should itself state that any false
disclosure by prospective resolution applicants will result in
ineligibility to submit resolution plan, forfeiture of any
refundable deposit and potential consequences under the Code.
Accordingly, resolution applicants must take due care and counsel
advice when submitting EOIs.
- Changes governing COC's decision-making are meant to ensure
transparency and accountability in COC's evaluation of
resolution plans and restrict COC's discretion while approving
or rejecting a resolution plan. Adherence to these conditions
should provide the COC with robust defences in case of challenges
regarding COC's decisions.
- The provision of a format for the RP compliance certificate
reinforces the RP's duty to ensure that the approved plan
complies with the IBC.
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Contents of Resolution
Plan |
The resolution plan must
demonstrate that (i) it addresses the cause of default, (ii) it is
feasible and viable, (iii) it has provisions for its effective
implementation, and (iv) it has provisions for approvals required
and timeline for the same, and (v) the resolution applicant has the
capability to implement the resolution plan. |
Although some of these
conditions were usually prescribed under the process document
issued by the RP, these are now mandatorily required to be inserted
pursuant to law. |
Other key changes |
- The resolution plan now may provide for cancellation or
delisting of shares of the corporate debtor, if required.
- RPs are required to opine on and determine preferential,
undervalued, extortionate or fraudulent transactions within
timelines and in the manner specified.
- In case appointment of the RP is delayed, IRP must perform the
functions of the RP.
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- The changes regarding cancellation and delisting appear to have
been introduced to bring the CIRP Regulations in line with the
recent amendments to SEBI's delisting regulations. This may
assist NCLT and regulators taking a view that any reduction or
cancellation of capital contemplated in a resolution plan is being
made under the IBC and not under the Companies Act, 2013
("Companies Act"), and therefore, no
compliances under the Companies Act ought to be required.
- The imposition of timelines for finding avoidance transactions
means that RPs have even more to do in less time. Equally, it gives
stakeholders further visibility on likely recoveries from such
process.
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The Amendment Regulations are prescriptive in nature and impose
strict timelines. While, in many instances this will improve deal
certainty, it may, in some instances, curtail the ability of RPs to
maximise recoveries in the hands of stakeholders. The Amendment
Regulations is yet another substantive amendment to the CIRP
process, and it continues to indicate the Government's
commitment to overhaul India's credit regime and clean-up bank
balance sheets. These amendments promise to have far reaching
implications on CIRPs initiated post 4 July 2018.
Particulars under the model timeline |
Comments |
Regulation |
Description of
activity |
Latest Timeline |
|
Section 16(1) |
Commencement of CIRP and
appointment of IRP |
....... |
T |
- |
Regulation 6(1) |
Public announcement
inviting claims |
Within 3 days of
appointment of IRP |
T+3 |
- |
Section 15(1)(c) /
Regulations 6(2)(c) and 12 (1) |
Submission of
claims |
For 14 days from
appointment of IRP |
T+14 |
- |
Regulation 12(2) |
Submission of
claims |
Up to 90th day of
commencement |
T+90 |
Earlier, a creditor, who
failed to submit proof of claim within the time stipulated in the
public announcement, could submit such proof to the IRP or the RP,
as the case may be, till the approval of a resolution plan by the
COC. |
Regulation 13(1) |
Verification of claims
received under regulation 12(1) |
Within 7
days from the last date of the receipt of claims |
T+21 |
- |
Regulation 13(2) |
Verification of claims
received under regulation 12(2) |
T+97 |
- |
Section 21(6A) (b) /
Regulation 16A |
Application for
appointment of authorised representative |
Within 2
days from verification of claims received under Regulation
12(1) |
T+23 |
No such timeline
provided previously. |
Regulation 17(1) |
Report certifying
constitution of COC |
The IRP was earlier
required to file a report certifying constitution of COC on or
before the expiry of 30 days from the date of his appointment. |
Section 22(1) /
Regulation 19(1) |
1st meeting of the
COC |
Within 7 days of filing
the report, with 5 days' notice |
T+30 |
Earlier, a 7 day notice
period was applicable. |
Section 22(2) |
Resolution to appoint RP
by the COC |
In the first meeting of
the COC |
T+30 |
- |
Section 16(5) |
Appointment of RP |
On approval by the
NCLT |
...... |
- |
Regulation 17(3) |
IRP performs the
functions of RP till the RP is appointed. |
If RP is not appointed
by 40th day of commencement |
T+40 |
Earlier, the term of the
IRP could not exceed 30 days from the date of his appointment. Now,
the term of the IRP continues till the date of appointment of the
RP. |
Regulation 27 |
Appointment of
valuer |
Within 7 days of
appointment of RP, but not later than 47th day of commencement |
T+47 |
Prior to the Amendment
Regulations, there was no limitation of appointing the valuer no
later than the 47th day from the insolvency commencement date. |
Section
12(A) / Regulation 30A |
Submission of
application for withdrawal of application admitted |
Before issue of EOI |
W |
No such
timelines provided previously. |
COC to dispose of the
application |
Within 7 days of its
receipt or 7 days of constitution of COC, whichever is later. |
W+7 |
|
Filing application of
withdrawal, if approved by COC with 90% majority voting, by RP to
NCLT |
Within 3 days of
approval by COC |
W+10 |
Regulation
35A |
RP to form an opinion on
preferential and other transactions |
Within 75 days of the
commencement |
T+75 |
No such
timelines provided previously. |
RP to make a
determination on preferential and other transactions |
Within 115 days of
commencement |
T+115 |
RP to file applications
to NCLT for appropriate relief |
Within 135 days of
commencement |
T+135 |
Regulation 36 (1) |
Submission of
information memorandum to each member of the COC |
Within 2 weeks of
appointment of RP, but not later than 54th day of commencement |
T+54 |
Prior to the Amendment
Regulations, there was no limitation of submitting the information
memorandum no later than the 54th day from the insolvency
commencement date. |
Regulation
36A |
Publish Form G |
Within 75
days of commencement |
T+75 |
No such
timelines provided earlier. |
Invitation of EOI |
Submission of EOI |
At least 15 days from
issue of EOI (Assume 15 days) |
T+90 |
Provisional List of
resolution applicants by RP |
Within 10 days from the
last day of receipt of EOI |
T+100 |
No such
timelines provided earlier. |
Submission of objections
to provisional list |
For 5 days from the date
of provisional list |
T+105 |
Final List of resolution
applicants by RP |
Within 10 days of the
receipt of objections |
T+115 |
Regulation
36B |
Issue of request for
resolution plan (RFRP), including evaluation
matrix and information memorandum |
Within 5 days of the
issue of the provisional list |
T+105 |
No such
timelines provided earlier. |
Receipt of resolution
plans |
At least 30 days from
issue of RFRP (assume 30 days) |
T+135 |
Regulation 39(4) |
Submission of COC
approved resolution plan to NCLT |
As soon as approved by
the COC |
T+165 |
- |
Section 31(1) |
Approval of resolution
plan by NCLT |
|
T+180 |
- |