The Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) (Fourth Amendment) Regulations, 2022 ("Amendment Regulations") issued on 16th September 2022 have brought in its fold a very crucial amendment to the IBBI (CIRP) Regulations, 2016 ("the Regulations"). It is likely that the Amendment Regulations will bring about a change that has the potential to revolutionize the CIRP Process of Real Estate companies undergoing insolvency.

Until now, it was mandatory for the Resolution Professional ("RP") appointed under the IBC to seek resolution of the corporate debtor as a whole. In the matter of– Binani Industries Limited vs. Bank of Baroda and Anr. the NCLAT has held as follows :

"The 'I&B Code' defines 'Resolution Plan' as a plan for insolvency resolution of the 'Corporate Debtor' as a going concern. It does not spell out the shape, colour and texture of 'Resolution Plan', which is left to imagination of stakeholders...
.. It is not a sale. No one is selling or buying the 'Corporate Debtor' through a 'Resolution Plan'. It is resolution of the 'Corporate Debtor' as a going concern. One does not need a 'Resolution Plan' for selling the 'Corporate Debtor'. If it were a sale, one can put it on a trading platform. Whosoever pays the highest price would get it."

Contrary to the above position, Clause 9 of the Amendment Regulations, has introduced a new sub-regulation 6A in Regulation 36B of the Regulations which reads as follows :-

"(6A) If the resolution professional, does not receive a resolution plan in response to the request under this regulation, he may, with the approval of the committee, issue request for resolution plan for sale of one or more of assets of the corporate debtor."

Under the Sub -regulation 7 of Regulation 36B, if the resolution professional did not receive a resolution plan in response to his request or the resolution plan was not satisfactory, he had the option to re-issue a request for the resolution plans, with the approval of the CoC, subject to the condition that the request is made to all prospective resolution applicants in the final list.

However, the new sub regulation 6A, now provides an additional option to the resolution professional in case a resolution plan is not received by him, i.e. to invite resolution plans from prospective resolution applicants for part of the assets of the corporate debtor.

It is pertinent to note that the new sub regulation 6A enables the RP to sell part of the assets of the corporate debtor only if NO resolution plan is received.

It is also imperative to consider as to what happens in a situation where the resolution plan received by the resolution plan is not satisfactory or does not meet the requirements of the COC. While the new amendment does not address this situation, as per the current amendment, it appears that in such a situation, the resolution professional will have no other alternative, other than perhaps resorting to sub-regulation (7) of Regulation 36B as discussed above, and invite new resolution applications.

While it is evident from the provision, that it requires approval from the Committee of Creditors, it remains unclear whether it would require a simple majority approval or an approval by a special majority. The decision for sale of part assets of the corporate debtor ought to require the approval of a special majority of the CoC since it may be misused by some creditors of the CoC over others.

In the post pandemic world, there are a number of real estate companies in distress undergoing insolvency before various benches of the NCLT. This new provision, may provide a boost to incoming resolution applicants and will certainly attract the interest of reconstruction companies who may be now willing to purchase part of the assets of these distressed companies. Interestingly, while the new amendment enables the RP to sell part of the assets of the Corporate Debtor, it does not deal with the question of the treatment of the liabilities on that asset vis-à-vis the proceeds of sale. In real estate companies, it is typical that liabilities are attached to specific assets and the business plans are also evolved asset wise and therefore when one asset fails and the resolution requires lenders/ creditors who did not have exposure to that asset to now understand its background and to decide its future (as also gain from the proceeds of this asset), it creates a very anomalous situation.

Another important amendment that has been made to the Regulations, is the introduction of new Regulation 39 BA, which requires the committee of creditors to examine and explore a last resort compromise or arrangement with the corporate debtor during the period that the application to liquidate the corporate debtor is pending before the NCLT.

This provision also gives further impetus and emphasis to the purpose of the Insolvency Code, which is resolution of insolvency of companies.

The above amendments are extremely crucial for companies, especially real estate companies undergoing insolvencies, and is certain to change the course of resolutions going forward.

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.