Introduction: The Insolvency and Bankruptcy Board of India recently introduced amendments to the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations of 2016 vide Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) (Amendment) Regulations, 2024 (Amendment Regulations) on 15th February, 2024. These amendments aim to refine and streamline the corporate insolvency resolution process, addressing various aspects such as financial transparency, voting procedures, oversight, and implementation.
(a) Operating separate bank accounts for real estate projects: To ensure financial transparency and accountability, the amendment makes it mandatory to have a separate bank account for each real estate project under a corporate debtor.
Analysis: Now IRP/RP shall open separate bank accounts for each real estate projects either going on or starting per se, for the corporate debtor to enhance the transparency in the CIRP and it will be beneficial for COC to monitor the fund flow.
(b) Monthly meetings of the committee of creditors (CoC): Under the amended dispensation, the resolution professional (RP) is mandated to convene a CoC meeting at least once in every thirty days, with a provision to extend the interval between meetings to a maximum of one meeting per quarter, if CoC so decides.
Analysis: After this amendment every IRP/RP of the corporate debtor under CIRP shall call COC Meeting in every 30 days, but however COC can extend such time of 30 days upto every quarter. Hence, every corporae debtor shall have atleast one meeting of COC in every 30 days or atleast one meeting in every quarter if COC extends such timeline.
(c) Voting procedures: In place of provision of minimum period specified for the opening of the voting window with no upper limit, the amended regulation empowers the CoC to decide the period of opening of electronic voting window with a minimum of twenty-four hours and a maximum of seven days with further increments of twenty-four hours each.
Further, to streamline the voting process, the amendment mandates that where the matters listed for voting have already received requisite majority vote, the RP shall provide one last opportunity to vote by extending the voting window by a maximum period of twenty-four hours.
Analysis: Voting of COC is the deciding factor to take actions by the IRP/RP on their behalf, there was a minimum period for opening of voting window and no upper limit provision in this matter, after the amendment COC can decide the period of opening of electronic voting window with a minimum of twenty-four hours and a maximum of seven days with further increments of twenty- four hours in each limit as specified in this amendment. However, to streamline the voting process, if matter listed in the meeting of COC already get majority votes, now, RP have the power to give a last opportunity to the members of COC who have not voted in that matter to vote upon by extending the voting window by maximum of 24 hours only.
(d) Approval of insolvency resolution process costs: With a view to enhance the oversight of the CoC over going concern costs, the amendment provides that the RP to seek approval from the CoC for all costs including going concern costs related to the insolvency resolution process.
Analysis: With the provisions of this amendment, RP shall seek approval of all costs incurred by him from COC in the duly convened meeting of COC, and this costs shall include going concern cost i.e the cost which has to be incurred in the future to maintain the going concern status of the corporate debtor and the debts of COC members shall remain intact.
(e) Disclosure of valuation methodology: With an aim to increase transparency and reduce disputes over valuation related issues, the amendment provide for explaining the valuation methodology to the members of the CoC before the computation of estimates.
Analysis: In view of recent amendments on the valuation aspects, IBBI amends the CIRP regulation in this matter that Registered Valuer(RV) shall first explain the valuation methodology which they want to apply in the matter of Corporate debtor to the COC members before applying such method in real, it means that RV shall explain methods to be applied before estimating value of the corporate debtor under CIRP.
“Regulation 35 of the CIRP Regulations mandates the valuers to assess value of the CD ‘computed in accordance with internationally accepted valuation standards, after physical verification of the inventory and fixed assets of the corporate debtor’”.
(f) Disclosure of fair value in the information memorandum: For fostering informed participation in the process, the amendment provides that the fair value may be made part of the information memorandum (IM). However, the CoC, after recording the reasons, can decide not to share such an information where in it’s considered view such a disclosure is not beneficial for the resolution.
Analysis: In case of inviting resolution plans from the prospective resolution applicants, RP’s have to prepare Information Memorandum (IM) regarding the valuation of the corporate debtor, with this amendment the Fair value of the corporate debtor shall form part of this information memorandum, but COC can exercise their power and decide not to share such an information (Fair Value) with the reasons in writing, if they are considering that disclosure of such information is not beneficial for the resolution of CIRP of the corporate debtor.
(g) Flexibility in inviting resolution plans in real-estate cases: With a view that each project in a real estate case may need different treatment in terms of resolution, the amendment clarifies that after due examination, the CoC may direct the RP to invite separate plan for each project.
Analysis: Real estate sector are the paragon of complexity in the Insolvency world, there are several factors to view these cases in the different manner and with a view to enhance CIRP process in the real estate sector IBBI take a step through this amendment to invite better resolution plans for each project run by the real estate entity, suppose two different projects are going on in the corporate debtor and one have lesser fair value than other, then the resolution plan got affected with this matter and IBBI decided to invite different resolution plans for the different real estate project, but the power to decide rest upon the COC, if COC decides to invite separate plans for each real estate project after due examination, they may direct the RP to act likely.
(h) Monitoring committee for implementation of resolution plan: The amendment enables the CoC to decide for constitution of a monitoring committee for overseeing the implementation of the resolution plan. The committee may include the RP, any other insolvency professional or any other person as its member. In case the RP is made part of the committee, the monthly fee payable to him shall not exceed the monthly fee received by him during the corporate insolvency resolution process.
Analysis: With this amendment, COC shall vested with a power to constitute a monitoring committee to oversee the implementation of Resolution plan which may include RP, any other insolvency professional (IP) and other person as member of such committee. But, if RP is made part of such committee then, the monthly fee payable to such RP shall not exceed the monthly fees received by him during the CIRP. In other words, for such work the RP shall not charge fees more than the fees charged during the CIRP.
(i) Continuation of the resolution process pending extension application: A clarification has been provided to ensure that RP continues to discharge his responsibilities under the resolution process till an application for extension is being decided by the Adjudicating Authority.
Analysis: Here IBBI clarifies on the matter that RP shall discharge his responsibilities under CIRP after the last date of CIRP until the Hon’ble NCLT/NCLAT or appropriate adjudicating authority decided for such extension. In other words, RP shall not set free from their responsibilities after the tenure of CIRP, if extension application is pending before the adjudicatimng authority.
Conclusion: The amendments to IBBI(CIRP) Regulations 2016 represent a significant step towards enhancing transparency, efficiency, and stakeholder participation in the corporate insolvency resolution process. By addressing various aspects such as financial transparency, voting procedures, oversight mechanisms, and implementation strategies, these amendments aim to foster a more robust and effective insolvency framework in India.
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