India: CIRP Regulation Amendments: A Step Closer Towards A Smooth Functioning Insolvency Regime

Last Updated: 6 August 2018
Article by Manoj K. Singh, Daizy Chawla, Vineet Arora, Himanshu Chawla and Shashwat Singh

Most Read Contributor in India, July 2018

In June 2018, came an amendment in the Insolvency and Bankruptcy Code, 2016 ("the Code") which have introduced many new changes in the Code. When such change occurs, the rules and regulations forming part of the whole scheme also need to be amended accordingly to ensure the smooth functioning of the scheme. Accordingly, on 04th July 2018 amendment to the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons)Regulations, 2016 ("Regulations") were notified.

These omissions, editions and additions to the Regulations by the way of the third amendment compliment the changes in the Code. Apart from the small changes in t he Regulations, the following are the major changes that have taken place.

Authorised Representative

Where the Corporate Debtor has class of creditors with such number of creditors in a class as specified, the Interim Resolution Professional (IRP), as per the amended regulations, shall offer a choice of three (3) Insolvency Professionals (IP) to act as the Authorised Representative of Creditors of the respective class. Such offer shall be made in Public Announcement. The Insolvency Professional to get the maximum number of votes by the creditors of that respective class shall be appointed as the Authorised Representative of that class. This has been provided in the new regulations 4A, 16A and 16B.

For the purpose, of counting the voting percentage of Creditors, it has been clarified in Regulation16A that where the rate of interest has not been agreed to between the parties in case of creditors in a class, the voting share of such a creditor shall be in proportion to the financial debt that includes an interest at the rate of eight percent per annum.

Constitution of Committee

Before the amendment, under Regulation 17, the IRP needs to file the report w.r.t constitution of Committee with the Adjudicating Authority on or before the expiry of Thirty (30) clays from the elate of his appointment and the first meeting of the such Committee was required to be convened within seven (7) clays of filing of such report.

Under the amended regulation, the IRP shall file the report certifying the Constitution of the Committee to the Adjudication Authority within two (2) clays of verification of claims under Regulation 12(1). Thereafter, the first meeting of the Committee needs to be convened within Seven (7) days of filing of such report.

IRP to act as RP

Amended Regulation17(3)1 provides, if by any reason the appointment of RP is delay then the IRP shall act as the RP from the Fortieth (40) day of commencement Corporate Insolvency Resolution Process (CIRP) date till the RP is appointed under Section 22 of the Code.

Notice for calling the Meeting of Committee

The time period to call the meeting of the Committee under Regulation 19 has been changed from Seven (7) clays to Five (5).

The Regulation 19 further provides that the time period of serving notice can further be reduced from Five (5) days to such other period of not less than forty-eight (48) hours where there is any Authorised representative and to twenty-four hours in all other cases.

Voting in case of Creditors in a class

As per newly inserted Regulation 16(A)(9), the Authorised Representative shall circulate the agenda to creditors in a class and announce the voting window at least twenty-four hours before the window opens for voting instructions and keep the voting window open for at least twelve hours.

Withdrawal of Application

Section12 A of the Code, provides that withdrawal of an Application admitted under Sections 7, 9 or 10 of the Code by Hon'ble Adjudicating Authority can be filed before issue of invitation for expression of interest under Regulation 36A i.e. before Seventy-fifth (75) day of initiation of CIRP.

As per Regulation 30A, such application for withdrawal needs to be submitted to the IRP or the RP along with a bank guarantee towards estimated cost incurred for purposes of clauses (c) and(d) of Regulation 31 till the date of application. The committee shall consider the application with in seven (7) days of its constitution or seven days of receipt of the application, whichever is later. If approved by 90% votes or more, the RP shall submit the application to the Adjudicating Authority on behalf of the applicant, within three (3) clays of such approval. The option of withdrawal of application gives the applicant an opportunity to have the situation corrected without forcing the corporate debtor into insolvency This is especially helpful to corporate debtors who themselves have filed for insolvency as it helps them to reconsider the decision and improve their status on their own.

Timelines for determining Preferential and Other Transactions

Though the Code provides Section 43 that the RP/Liquidator have formed an opinion that the Corporate Debtor has at a relevant time given a Preference to such transactions as enumerated under Sub section (2) with persons enumerated under sub section (4), it can file an application before the Adjudicating Authority for avoidance of such transactions however there were no timelines provided to file such application .

Accordingly, Regulation 35A which was inserted vide second amendment have now been substituted and a time period has been given to RP within which an opinion be formed, determined and accordingly been filed before Adjudicating Authority for relief. As per the amended regulation, the RP needs to form an opinion whether the Corporate Debtor has been subjected to any transactions covered under Section 43,45,50 and 66 on or before Seventy fifth (75) day of insolvency commencement date. Further, under the intimation of the Board, the determination of such transactions be made on or before the One Hundred and Fifteenth (115) day of insolvency commencement date.

Furthermore, an application be filed on or before One Hundred Thirty Fifth (135) day from Insolvency commencement date for appropriate relief before the Hon'ble Adjudicating Authority. Such inclusion of timelines is a welcome insertion as otherwise in many cases the application before the Hon'ble Adjudicating Authority have been filed for relief near to the end date of CIRP. when all the efforts should be towards completing the CIRP with a resolution plan.

Submission of Information Memorandum

Regulation 36have been amended to the extent that the RP is required to submit the Information Memorandum in electronic form to each member of committee within two (2) weeks of his appointment but not later than fifty-fourth (54) day from the insolvency commencement date, whichever is earlier.

In other words, where the appointment of RP is delayed and IRP continues as per Regulation 17(3) then IRP will be required to submit the information memorandum by Fifty Fourth (54) day from the insolvency commencement date.

Furthermore, earlier under Regulation 36 (4), the information memorandum can be shared with potential resolution applicant after receiving an undertaking however now after the amendment the information memorandum cannot be shared with potential resolution applicant.

Invitation for Expression of Interest

The existing Regulation 36A has been substituted with insertion of new Regulation 36A. in the newly substituted Regulation 36A, a resolution professional is required to publish an invitation for submitting Expression of Interest (EOI) in Form G by the Seventy Fifth (75) day of insolvency commencement date specifying basic information about the Corporate Debtor, the criteria (which has been approved by Commit tee under Section 25 of the Code), ineligibility (as stated under Section 29A of the code), last elate for submission of the EOI, documents required to be submitted along with EOI and such other details as need be.

The resolution professional after receiving of the EOI will be required to conduct due diligence based on material on record and issue a provisional list of prospective resolution applicants within 10 days of the last date of submission of EOI wit h Committee and to all Prospective Resolution Applicants who have submitted the EOI.

Any objection w.r.t provisional list need so to be made within five(5) days from the date of issue of the provisional list. The final list needs to be issued within 10 days of the last date for receipt of objections.

Request for Resolution Plans

A new Regulation 36B has been inserted which provides for the mode and manner to Request for Resolution Plans.

A RP is required to issue information memorandum, evaluation matrix and request for resolution plans, within five (5) days of issue of the provisional list to the prospective resolution applicants who are part of the provisional list and also to the prospective resolution applicant who has contested the decision of the RP against its inclusion I the provisional list. The request for Resolution plans shall details step in the process, the manner and purposes of interaction between the resolution professional and the prospective resolution applicant, along with corresponding timelines.

Minimum time period given to Prospective Resolution Applicant for submission of Resolution Plan should not be less than 30 days. If any modified request for submission of Resolution Plan is made by RP or there is any amendment in evaluation matrix shall be deemed to be a fresh issue and shall be subject to timeline given in the regulation. Any extension in the submission of Resolution Plans shall be with the approval of Committee. Further, in case the Resolution Plans receive dare not satisfactory, the RP can with the approval Committee however such request will be made to the prospective resolution applicants of the final list.

Timelines for submission of Resolution Plan approved by Committee

As per substituted Regulation 39(4), the RP shall take all endeavors to submit the Resolution Plan approved by the Committee to the Adjudicating Authority at least fifteen (15) days before the maximum period for completion of CIRP. The said submission will be accompanied along with Form H (Compliance Certificate).

Model Timeline

The legislature has inserted a model timeline for the corporate insolvency resolution process by the way of adding regulation 40A. A welcomed addition as there was always confusion and distress with respect to a stable universal timeline for the process as the dates and deadlines were scattered in various regulations and not jotted down at one place. It assumes that the interim resolution professional is appointed on the date of commencement of the process and the time available is hundred and eighty (180) days.

AA: Adjudicating Authority; AR: Authorised Representative; CIRP: Corporate Insolvency Resolution Process; CoC: Committee of Creditors; Eal: Expression of Interest; IM: Information Memorandum; /RP: Interim Resolution Professional; RA: Resolution Applicant; RP: Resolution Professional; RFRP: Request for Resolution Plan. References to all sections are with respect to the Insolvency and Bankruptcy Code, 2016. References to all regulations are with respect to the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

Section/Regulation Description of Activity Norm 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
Regulation 13(1) Verification of claims received under regulation 12(1) Within 7 days from the receipt of the claim T+21
Regulation 13(2) Verification of claims received under regulation 12(2) T+97
Section 21(6A) (b) / Regulation16A Application for appointment of AR Within 2 days from verification of claims received under regulation 12(1) T+23
Regulation 17(1) Report certifying constitution of CoC T+23
Section 22(1)/ Regulation 19(1) 1st meeting of the CoC Within 7 days of the constitution of the CoC, but with seven days notice T+30
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 AA ......
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
Regulation 27 Appointment of valuer Within 7 days of appointment of RP, but not later than 40th day of commencement T+47
Section 12(A)/Regulation 30A Submission of application for withdrawal of application admitted Before issue of Eol w
CoC to dispose of the application Within 7 days of it s receipt or 7 days of constitution of CoC, whichever is later W+7
Filling application of withdrawal, if approved by CoC with 90% majority voting by RP to AA 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
RP to make a determination on preferential and other transactions Within 115 days of commencement T+115
RP to file applications to AA for appropriate relief Within 135 days of commencement- T+135
Regulation 36(1) Submission of IM to CoC Within 2 weeks of appointment of RP but not later than 54th day of commencement T+54
Regulation 36A Publish Form G Within 75 days of commencement T+75
Invitation of EOI
Submission of Eol At least 15 days from issue of Eol (Assume 15 days) T+90
Provisional List of RAs by RP Within 10 days from the last day of receipt of Eol T+100
Submission of objections to provisional list For 5 days from the date of provisional list T+105
Final list of RAs by RP Within 10 days of the receipt of objections T+115
Regulation 36B Issue of RFRP, including Evaluation Matrix and IM Within 5 days of the issue of the provisional list T+105
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 AA As soon as approved by the CoC T+165
Section 31(1) Approval of resolution plan by AA T=180

Changes and Additions in Forms

Form A: Public Announcement

To get in sync with the matters relating to class of creditors and authorised representatives, From A has been amended to add

12. Classes of creditors, if any, under clause {b) of sub-section {6A) of section 21, ascertained by the interim resolution professional.

13. Names of Insolvency Professionals identified to act as Authorised Representative of creditors in a class {Three names for each class).

14. (a)Relevant Forms and {b)Details of authorised representatives are available at:

Form AA: Written Consent to Act as Resolution Professional

This is a new addition which is basically a consent form stating that the resolution professional consents to act as the same. It is required under regulation 3(1A).

Form AB: Written Consent to Act as Authorised Representative

Similar to Form AA, it is a consent form stating that the authorised representative consents to act as the same. It is required under regulation 4A (3).

Form CA: Submission of Claims by Financial Creditors in a Class

As the freshly introduced regulation 8A talks about claims by creditors in a class, it was understood that there should be a form complementing the regulation, like Form C with respect to regulation 8.

Form FA: Application for Withdrawal of Corporate Insolvency Resolution Process

Since the possibility of withdrawal of application has been included in the Code and, with the third amendment, in the regulations, the necessity of a form for the same does not require any clarification. It is with respect to regulation 30A.

Form G: Invitation for Expression of Interest

As the regulation 36A relating to Invitation of Resolution Plans has been divided into two new regulations, namely, regulation 36A relating to Invitation for expression of interest and regulation 36B relating to request of resolution plans, the old form G has been changed to correspond with the new regulation 36A.

Form H: Compliance Certificate

This form has been added as a requirement as per regulation 39(4) as the resolution plan requirements and functioning have majorly changed in the amended Code. This makes the easier and faster for the resolution professional to check whether all compliances as per the Regulations have been completed or not. This form is basically the compliance certificate which is now necessary to get the approval of the resolution plan. This makes things more transparent and avoids confusion.

Footnotes

1. Section 16(5) of the /&8Code2016

2. Regulation 31 (c): Expenses incurred on or by the /RP t o the extent ratified under Regulation 33; Regulation 31(d): Expenses incurred on or by the Resolution Professional fixed under Regulation 34.

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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