India: Amendments To The IBBI (Insolvency Resolution Process For Corporate Persons) Regulations, 2016 And The IBBI (Liquidation Process) Regulations, 2016

1. INTRODUCTION

On July 25, 2019, the Insolvency and Bankruptcy Board of India ("IBBI") notified amendments1 to the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (the "CIRP Regulations") and the IBBI (Liquidation Process) Regulations, 2016 ("Liquidation Regulations").

The amendments have immediate effect and are introduced with an aim to achieve the primary purpose of the Insolvency and Bankruptcy Code of India, 2016 (the "Code"), which is the early resolution of stressed assets. We discuss below, some of the key amendments that the regulations have introduced.

2. AMENDMENTS TO THE CIRP REGULATIONS

2.1. Withdrawal of Application2

Previously, the unamended CIRP Regulations provided that an application admitted for initiation of insolvency resolution process could only be withdrawn before the issuance of an invitation for expression of interest from the prospective resolution applicants. Additionally, the application could have been withdrawn only if approval of at least 90% (voting share) of the Committee of Creditors ("CoC") was obtained.

With the notification of the amendment to the CIRP Regulations, the application can be withdrawn even after the issuance of an invitation for expression of interest or before the constitution of the CoC. The approval from the CoC would only be required in cases where the CoC has been constituted.

2.2. Meeting Liquidation Costs

Regulation 39 (B) has been introduced to the CIRP Regulations which provides that the CoC while approving a resolution plan or deciding to liquidate the corporate debtor may, in consultation with the resolution professional, make a best estimate of the 'amount required to meet liquidation costs' and 'liquid assets available to meet the liquidation costs' if an order for liquidation is passed by the National Company Law Tribunal (the "NCLT").

Where the amount of liquid assets is less than the liquidation costs, the CoC shall approve a plan providing for contribution for the balance amount, which is required to be submitted by the resolution professional to the NCLT while filing the approval or the decision of the CoC with the NCLT.

2.3. Sale of the Corporate Debtor or its Business

Regulation 39 (C) has also been introduced to the CIRP Regulations which provides that the CoC while approving a resolution plan or deciding to liquidate the corporate debtor may now recommend the liquidator to first explore the 'sale of the corporate debtor as a going concern' or 'sale of the business of the corporate debtor as a going concern'.

Upon such recommendation, the CoC shall identify and group the assets and liabilities according to its commercial considerations. Further, the resolution professional is required to submit the recommendation to the NCLT while filing the approval or decision of the CoC with the NCLT.

2.4. Liquidator's Fees

Regulation 39(D) has been introduced by the amendment to the CIRP Regulations to provide that the CoC while approving a resolution plan or deciding to liquidate the corporate debtor may in consultation with the resolution professional fix the fee payable to the liquidator, if an order for liquidation of the corporate debtor is passed. Further, the liquidator's fees has been linked to: (a) the period, if any, which has been used for compromise or arrangement under the Companies Act, 2013, (b) sale of the corporate debtor or business of the corporate debtor as a going concern, and (c) the balance period of liquidation.

3. AMENDMENTS TO THE LIQUIDATION REGULATIONS

3.1. Contributions to Liquidation Costs

Regulation 2A to the Liquidation Regulations has been introduced to provide that in cases where the CoC approves a resolution plan which does not provide for contribution for meeting the difference between the liquid assets and the liquidation costs, the liquidator shall call upon the financial creditors, being financial institutions, to contribute the excess of the liquidation costs over the liquid assets of the corporate debtor, in proportion to the financial debts owed to them by the corporate debtor.

3.2. Time Period for Compromise or Arrangement

Regulation 2B has been introduced by the amendment to the Liquidation Regulations to provide that where a compromise or an arrangement is proposed under Section 230 of the Companies Act, 2013, it shall be completed within a period of 90 days from the date on which the order for liquidation has been passed. Further, such time period of 90 days will be excluded from the liquidation period.

3.3. Claims3

Previously, the unamended Liquidation Regulations provided for 'Proof of claims' where a stakeholder was required to prove his claim of debt or dues to him including interest as on the liquidation commencement date.

The existing regulation has been substituted to provide for 'Submission of claim', wherein a person claiming to be a stakeholder may submit or update his claim (including interest) during the corporate insolvency resolution process, on or before the last date mentioned in the public announcement.

3.4. Security Interest

Regulation 21A to the Liquidation Regulations has been introduced to provide that a secured creditor is required to inform the liquidator of its decision to relinquish its security interest to the liquidation estate or realise its security interest.

If the secured creditor fails to intimate its decision within 30 days from the liquidation commencement date, the assets covered under the security interest shall be presumed to be part of the liquidation estate.

Additionally, it has been provided that in case the secured creditor chooses to realise its security interest, it shall be required to share the same amount towards the costs of insolvency and liquidation process and towards workmen dues for the period of 24 months preceding the liquidation commencement date, in the manner it would have shared in case it had not realised its security interest.

3.5. Stakeholders' Consultation Committee

Regulation 31 A has been introduced in the Liquidation Regulations to provide that a stakeholders' consultation committee is required to be constituted by the liquidator within 60 days from the liquidation commencement date, to advice the liquidator on matters relating to the sale of assets of the corporate debtor. However, the advice, which is required to be cleared by 66% voting share of the committee, shall not be binding on the liquidator.

The maximum representation on the stakeholders' consultation committee has been reserved for the secured financial creditors who have relinquished their security interest, followed by unsecured financial creditors, with the shareholders being last in the order of priority.

3.6. Sale as a Going Concern

Regulation 32A of the Liquidation Regulations has been introduced keeping in mind the amendment to the CIRP Regulations which provides that the sale of the corporate debtor or the business of the corporate debtor may be given precedence over the other forms of sale of assets.

Amongst others, it also provides the time frame of 90 days from the liquidation commencement date for the completion of the sale of assets as a going concern, failing which the liquidator shall proceed to sell the assets of the corporate debtor by other methods laid down under Regulation 32 of the Liquidation Regulations.

3.7. Timelines

The liquidation process was previously required to be completed within 2 years by the liquidator. The amendments requires the completion of liquidation process within 1 year from its commencement, notwithstanding pendency of applications for avoidance transactions. In case the sale of assets is being made as a going concern, an additional time period of 90 days has been provided. 4

Further, a new model timeline for a liquidation process has been provided for various tasks.

No. Description of Task Days (if not specified otherwise)
1. Commencement of liquidation and appointment of liquidator T = 0
2. Public announcement in Form B T + 5
3. Appointment of registered valuers T + 7
4. Intimation of decision on relinquishment of security interest T + 30
5. Withdrawal/ modification of claim T + 44
6. Verification of claims received T + 60
7. Constitution of Stakeholder Consultation Committee T + 60
8. Intimation about decision of acceptance/ rejection of claim T + 67
9. Filing the list of stakeholders and announcement to public T + 75
10. Appeal by a creditor against the decision of the liquidator T + 81
11. Preliminary report to the NCLT T + 75
12. Asset memorandum T + 75
13. Submission of progress reports to NCLT; and Asset Sale report to be enclosed with every progress report, if sales are made Within 15 days of each quarter; and

audited accounts of liquidator's receipt & payments for the financial year - before15th April
14. Progress report in case of cessation of liquidator Date of cessation + 15
15. Information to secured creditors Date of intimation + 21
16. Distribution of the proceeds to the stakeholders Date of Realisation + 90
17. Application to NCLT for Disclaimer of onerous property T + 6 months
18. Liquidation of corporate debtor. T + 365
19. Application to NCLT for order on unclaimed proceeds of liquidation or undistributed assets. Before dissolution order
20. Time period to H1 bidder to provide balance sale consideration Within 90 days of the date of invitation to provide the balance amount.

INDUSLAW VIEW

The amendments intend to simplify and expedite the processes and procedures for recovery of debts and increase creditor confidence. The reduction of time period to complete the liquidation process from 2 years to 1 year (plus 90 days in cases where the sale is as a going concern) including a model time line, highlights the importance of time bound resolution.

The amendments address the concern of a smooth withdrawal of applications, where the applicants prefer restructuring of the company over liquidation.

Previously, irrespective of whether a claim had been filed during the insolvency resolution process, it was required to be submitted again during the liquidation process. The amendment now provides that the claim can be updated, which reduces compliance requirements and the risk of oversight by the creditors.

The introduction of a regulation recognising the financing of liquidation costs would be beneficial for the liquidators and the creditors, as it would make the process for the liquidators smoother and provide comfort to the banks to finance such costs.

Providing a timeline for the secured creditors to make a decision regarding relinquishment of security interest is another step to ensure timebound resolution and to protect the value of the assets of the corporate debtor.

The constitution of the stakeholders' consultation committee envisages a more democratic approach in the liquidation process of the corporate debtor.

The Liquidation Regulations dealing with compromise or arrangement and sale of the assets or business of the corporate debtor seem to have been introduced recognising the importance of providing another opportunity of revival to the corporate debtor and to realise maximum value.

Further, in both cases a timeline of 90 days has been imposed which, coupled with the reduction of time period to complete the liquidation process (1 year), is a welcome move towards ensuring the objective of time bound resolution of stressed assets.

Footnotes

1. The notified amendments are the IBBI (Insolvency Resolution Process for Corporate Persons) (Amendment) Regulations, 2019 and the IBBI (Liquidation Process) (Amendment) Regulations, 2019.

2. Regulation 30A, Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) (Amendment) Regulations, 2019.

3. Regulation 16, Insolvency and Bankruptcy Board of India (Liquidation Process) (Amendment) Regulations, 2019.

4. Regulation 44, Insolvency and Bankruptcy Board of India (Liquidation Process) (Amendment) Regulations, 2019.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
S.S. Rana & Co. Advocates
 
In association with
Practice Guides
by Mondaq Advice Centres
Relevancy Powered by MondaqAI
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
S.S. Rana & Co. Advocates
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions