The Insolvency and Bankruptcy Board of India (“IBBI”) has amended the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (“CIRP Regulations”) and the Insolvency and Bankruptcy Board of India (Fast Track Insolvency Resolution Process for Corporate Persons) Regulations, 2017 (“Fast Track CIRP Regulations”), vide the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) (Amendment) Regulations, 2018 (available here), and the Insolvency and Bankruptcy Board of India (Fast Track Insolvency Resolution Process for Corporate Persons) (Amendment) Regulations, 2018 (available here), respectively. The amendments are effective from 6 February 2018 and 7 February 2018, respectively, to amend the CIRP Regulations and Fast Track CIRP Regulations to provide for key amendments inter alia:
1. Disclosure of Fair Value.
The amendments have introduced a new concept of fair value, which is now required to be disclosed to the committee of creditors (“COC”). Earlier, only the liquidation value was required to be disclosed to the members of COC. ‘Fair value’ is required to be determined by the registered values appointed as per the provisions of the amendments. The expression ‘fair value’ has been defined to mean the estimated realizable value of the assets of the corporate debtor, if they were to be exchanged on the insolvency commencement date between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing and where the parties had acted knowledgeably, prudently and without compulsion.
The confidentiality obligations as applicable to liquidation value vis-à-vis COC, resolution professional and registered valuers will be applicable to fair value also.
2. Timelines changed for sharing of the information memorandum (“IM”).
Before the amendments, the IM was required to be shared with members of COC and prospective resolution applicant, before the first meeting of the COC (which meeting is required to be conducted within seven (7) days of the constitution of the COC). Now, the IM is required to be shared by resolution professional with COC and prospective resolution applicant as per the following timelines:
a. COC: Within two (2) weeks of resolution professional’s appointment; and
b. Prospective resolution applicant: Latest by the date of invitation of resolution plan under section 25 of the Code.
3. Broader disclosures in the IM with respect to assets and liabilities of the corporate debtor.
The IM is now required to provide more detailed explanation for the assets and liabilities of the corporate debtor to includes details such as date of acquisition, cost of acquisition, remaining useful life, identification number, depreciation charged, book value, and any other relevant details.
4. Format prescribed for invitation for resolution plans, new concept of evaluation matrix (“EM”) introduced.
A format of invitation for resolution plans to be released by the resolution professional has been prescribed under the amendments. The phrase “evaluation matrix” means such parameters to be applied and the manner of applying such parameters, as approved by the COC, for consideration of resolution plans for its approval. In case EM is not made part of the invitation, the resolution professional is required to provide the same to the prospective resolution applicants at least fifteen (15) days (eight (8) days in case of fast track CIRP) before the last date for submission of resolution plans. However, in case EM has to be shared after the release of the invitation, the same needs approval of the COC.
The invitation and EM can be modified with the approval of the COC within the prescribed timelines.
5. Timebound and faster submission of resolution plans to COC and NCLT, clarity provided for timelines.
The resolution professionals were given the flexibility to provide a timeline to submit the resolution plan as per Section 25 of the Code. Now, the invitation released by the resolution professionals needs to state that resolution plans are required to be submitted at least thirty (30) days (fifteen (15) days in case of fast track CIRP) before the last date of submission of resolution plans.
The aforesaid timelines will not apply to an ongoing corporate insolvency resolution process / fast track insolvency resolution process (as the case may be)-
a. where a period of less than thirty-seven (37) days (in case of CIRP) or twenty-two (22) days (in case of fast track CIRP), as the case may be, is left for submission of resolution plans as per new timelines prescribed for submission of resolution plans;
b. where a period of less than eighteen (18) days (in case of CIRP) or eleven (11) days (in case of fast track CIRP), as the case may be, is left for submission of resolution plans as per new timelines prescribed for submission of resolution plans (in case no EM is issued as per the invitation).
Further, in view of absence of any period provided for submission of resolution plan by the resolution professional to NCLT, now the amendments have obligated the resolution professional to submit the resolution plan approved by the COC to the NCLT, at least fifteen (15) days before the expiry of the maximum period permitted under section the Code for completion of the CIRP/ fast track CIRP, as the case may be.
6. Contents of the resolution plan to provide more details.
The resolution plan now mandatory requires to provide for contents which were earlier optional under the CIRP Regulations / Fast Track CIRP Regulations, as the case may be. In addition to already existing items, the resolution plan now also needs to mandatorily provide for the measures, as may be necessary, for insolvency resolution of the corporate debtor for maximization of value of its assets, change in portfolio of goods or services produced or rendered by the corporate debtor, and change in technology used by the corporate debtor.
7. COC to approve the payment for insolvency costs, liquidation value to operational creditors and dissenting financial creditors.
Now the COC is required to specify amounts for payment towards insolvency costs, liquidation value due to operational creditors and dissenting financial creditors, while approving a resolution plan. The resolution applicant will continue to specify the sources of funds in the resolution plan for the aforementioned payouts.
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