STATUTORY UPDATES

Insolvency and Bankruptcy Board of India (Liquidation Process) (Amendment) Regulations, 2021

  • In exercise of the powers conferred by Clause (t) of sub-Section (1) of Section 196 read with Section 240 of the Insolvency and Bankruptcy Code, 2016 (31 of 2016) (IBC), the Insolvency and Bankruptcy Board of India (IBBI) on September 30, 2021 notified the following amendments into the IBBI (Liquidation Process) Regulations, 2016 (Principal Regulations).
  • Regulation 31A of the Principal Regulations provides for formation of a consultation committee known as Stakeholders' Consultation Committee (SCC), which has representation from secured Financial Creditors, unsecured Financial Creditors, workmen and employees, government, other operational creditors, and shareholder/partners to advice the Liquidator on matters relating to sale. In terms of the present amendment, following substitutions have been made in Regulation 31 A of the Principal Regulations:
    • The scope of the SCC has been increased since the sub-Regulation (1) of Regulation 31A of the Principal Regulation limited the scope of the SCC only in the matters pertaining to sale of assets as mentioned under Regulation 32 of the Principal Regulations. However, in terms of the present amendment, the sub-Regulation (1) of the Principal Regulations has been substituted, namely: "(1) The liquidator shall constitute a consultation committee within sixty days from the liquidation commencement date, based on the list of stakeholders prepared under Regulation 31, to advise him on matters relating to- (a) appointment of professionals and their remuneration under Regulation 7 (b) sale under Regulation 32, including manner of sale, pre-bid qualifications, reserve price, amount of earnest money deposit, and marketing strategy: Provided that the decision(s) taken by the liquidator prior to the constitution of consultation committee shall be placed before the consultation committee for information in its first meeting."
    • Further, sub-Regulation (4) has also been substituted, in terms of which, in case the stakeholders fail to nominate their representative for the SCC, the same shall be selected by a majority of voting share of the class present and voting.
    • Lastly, in terms of the amendment in sub-Regulation (10), whenever the Liquidator rejects the suggestion of the SCC, the same shall be recorded in writing and be mentioned in the next progress report.
  • The participation of large number of buyers in the process is key to better realization of value for the stakeholders. Keeping this in view, a proviso to Clause (3) of Para 1 of Schedule I of the Principal Regulations has been added, in terms of which a Liquidator shall not require payment of any non-refundable deposit or fee for participation in an auction. It also provides that the earnest money deposit shall not exceed 10% of the reserve price in an auction.
  • Also, with a view to improve visibility for the liquidation assets, the words 'issue of public notice' in sub-Clause (5) of Para1 of Schedule I have been substituted with 'make a public announcement'. The IBBI has made available an electronic platform at www.ibbi.gov.in for hosting public notices of auctions of liquidation assets of ongoing liquidation processes.
  • Further, for increased transparency and accountability, a new clause 11A has been inserted that provide for the Liquidator to intimate the reasons for rejection of the highest bid to the highest bidder and report the same in the next progress report.

Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) (Third Amendment) Regulations, 2016

  • In exercise of the powers conferred by Clause (t) of Sub-Section (1) of Section 196 read with Section 240 of IBC, IBBI on September 30, 2021 notified the following amendments (third amendment) into the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (CIRP Regulations).
  • To streamline the power and the statutory role of Committee of Creditors (CoC), the IBBI, by way of inserting sub-Regulation (1A) under Regulation 17 of the CIRP Regulation, has provided that in discharge of its functions and exercise powers under the IBC and regulations in respect of Corporate Insolvency Resolution Process, the CoC and its members shall be in compliance with the guidelines as and when the same may be issued by the IBBI.
  • Further, in order to comply with the cardinal principle of 'value maximization' enshrined under the IBC, the IBBI has given relaxation to make changes in the invitation of Expression of Interest. However, such modification shall be allowed to be made only once. This will not only ensure the value maximization but also adherence of timeline envisaged under the IBC. Additionally, by way of insertion of sub-Regulation (1B) to Regulation 39 of the CIRP Regulation, the CoC has been given the following directions pertaining to the consideration of the Resolution Plans submitted by the Resolution Applicants:
    • The committee shall not consider any Resolution Plan
      • Received after the time as specified by the committee under Regulation 36B
      • Received from a person who does not appear in the final list of prospective resolution applicants
      • Does not comply with the provisions of sub-Section (2) of Section 30 and sub-Regulation (1)

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