Indian Insolvency and Bankruptcy Board (table) see its circular no. IBBI/2022-23/GN/REG084 of June 14, 2022, in the exercise of the powers conferred by subparagraph
The main changes introduced by the Amending Regulations are as follows:
- It is now mandatory that an operational creditor (who must register for GST) accompany their Article 9 application, provide copies of the relevant excerpts from Forms GSTR-1 and GSTR-3B and copy of electronic transport invoices.
- The regulations now require the personnel of the debtor company, its promoters or any other person associated with the management of the debtor company to provide the information requested by the IRP/RP in the format and within the time limits that the IRP/RP may require. A similar requirement has also been imposed on the creditors of a debtor company who are now required to provide the IRP/RP with information concerning the assets and liabilities of the debtor company from the last valuation report, the inventory status, receivables status, property inspection reports, audit report, inventory audit report, title search report, technical agents report, bank account statement and any other information that will assist the IRP/RP in preparing the information memorandum, determining the valuation, and generally carrying out the insolvency resolution process
- In a significant change, the regulations now require that if the two estimates of a value in an asset class are significantly different, or upon receipt of a proposal for the appointment of a third appraiser registered by the creditors’ committee, the resolution professional may appoint a third chartered appraiser for an asset class for submission of an estimate of fair value and liquidation value calculated by two chartered appraisers. For the purposes of these Regulations, the class of assets shall have the definition given to it under the Companies (Registered Appraisers and Valuation) Rules 2017 and materially different has been defined as meaning a difference of twenty-five per cent of the liquidation value under an asset class.
- The creditors of the debtor company are now mandated to provide the resolution professional with a relevant extract of the audits of the debtor company, carried out by the creditors such as inventory audit, transaction audit, judicial audit , etc. They are also required to provide the latest resolution professional financial statements and other relevant debtor company financial information available with them.
- By way of a significant amendment, the mandatory content of a resolution plan has been updated to include-
“provides for the manner in which proceedings concerning cancellation transactions, if any, under Chapter III or fraudulent or illicit transactions under Chapter VI of Part II of the Code, will be prosecuted after the approval of the plan of resolution and the manner in which the proceeds, if any, of these proceedings will be distributed:
Provided that this clause shall not apply to any resolution plan which has been submitted to the contracting authority pursuant to subsection (6) of section 30 on or before the date of the opening of the Indian Council of the ‘Insolvency and Bankruptcy (Insolvency Resolution Process for Business Persons) (Second Amendment) Regulations 2022.’
- The Amending Regulations require operational creditors to provide excerpts of Form GSTR1, Form GSTR-3B and electronic freight bills, as applicable, with the application filed under Article 9 of the Code. The requirement to submit these documents at the time of filing the CIRP opening can improve the efficiency of the admissions process and prevent the contracting authority from wasting time requesting the required documents.
- The Amending Regulation strengthened the existing provisions, including Article 19 of the Code, by stipulating an obligation for the debtor company, its promoters or any other person associated with the management of the debtor company to provide the information in the form, manner and within the time limits prescribed by the resolution professional.
- The Amending Regulation modified the contours of the valuation (equitable and liquidation) of the debtor company. This has been done by replacing the existing provision, which provided that if the resolution professional is of the opinion that the two valuations submitted are materially different, they may appoint another registered valuator with a new, more objective provision which provides a definition of different and also requires that a third appraiser can be appointed if the creditors’ committee makes a proposal for the same or if there is a material difference in the values of an asset class. This gives more discretion to the CoC which ultimately has to exercise its commercial wisdom.
- The Amending Regulation attempted to ensure a free and rapid flow of information to the IRP/RP by requiring all creditors of the debtor company to provide information about the debtor company to the IRP/RP, including information about the assets and liabilities of the debtor company. , financial statements, valuation reports, bank statements, (judicial audit, inventory audit, etc.). This change could speed up the whole process by providing the IRP/RP with a sustainable data platform to rely on for purposes such as preparing briefing notes or identifying avoidable transactions. .
- The Amending Regulation also addressed a vexatious issue by providing that a resolution plan should include (as mandatory content) provisions relating to how the procedure relating to avoidance transactions under Chapter III or Chapter VI of Part II of the Code should be prosecuted and how proceeds related to the proceedings should be distributed. In particular, this amendment has been made applicable only with prospective effect and will not apply to the resolution plan submitted to the contracting authority, before the entry into force of the Amending Regulation (date of publication in the official journal).
The amending regulation provides for essential changes and seems to have been prepared after taking into account the difficulties encountered by stakeholders in a CIR process. Arrangements for the flow of information to the IRP/RP can help improve the speed and efficiency of the CIR process. It is worth noting that the amendment relating to a resolution plan containing a provision to deal with avoidable transactions and the proceeds thereof will not apply to plans which have been submitted to the adjudicating authority, however, if the plans have been approved by a creditors’ committee but not submitted to the contracting authority, they may need to be modified to meet this requirement. This should be considered in light of previous amendments which prescribed that a plan could only be amended once.