Insolvency and Bankruptcy Code, 2016 has been updated periodically by IBBI to make it relevant to changing situations. It has informed by its NOTIFICATION New Delhi, the 15th February, 2024 Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) (Amendment) Regulations, 2024, the new changes to meet the expectations of its stakeholders like insolvency professionals, lawyers, industry, various departments of the government and the vast network of investors from India and abroad.
The reference is given at the end of this article.
Let us learn the latest changes prescribed and my observations as an insolvency professional as well as a CPA from abroad.
(a) Operating separate bank accounts for real estate projects:
To have a clear view of the actual operational results under every project under development of real estate sector, the insolvency professional is advised to open individual bank account. Currently, this is not a necessity and only one account in the name like” —W I Infrastructure Ltd, CIRP” (obviously an assumed name) is opened and operated.
(b) Monthly meetings of the committee of creditors (CoC):
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. Currently, the insolvency professional does not adhere to this stipulation and the homebuyers and other stake holders are devoid of the latest developments in the projects.
(c) Voting procedures:
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. Additionally, it adds more importance by only giving 24 hours of additional voting in case of obtaining of requisite majority vote.
(d) Approval of insolvency resolution process costs:
Expectedly, 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.
(e) Disclosure of valuation methodology:
With an aim to increase transparency and reduce disputes over valuation related issues, the amendment provides for explaining the valuation methodology to the members of the CoC before the computation of estimates. This is not the current practice.
(f) Disclosure of fair value in the information memorandum:
The new stipulation allows inclusion of fair value in the information memorandum which is provided to solicit the investment from investors who may decide to participate in CIRP process.
(g) Flexibility in inviting resolution plans in real-estate cases:
To enable successful completion of each project under real estate projects, the insolvency professional has enabled IR to invite separate plan for each project. This is highly useful in case of mixed bag of projects like commercial/housing projects in any account under CIRP. The objective of investment by every investor for a commercial project or a housing project is different which was not previously recognized.
(h) Monitoring committee for implementation of resolution plan:
The COC may decide to have a monitoring committee with RP as a member to supervise the implementation of the resolution plan provided his remuneration does not exceed what he was getting under CIRP.
(i) Continuation of the resolution process pending extension application:
RP continues to function till his extension is decided by Adjudicating authority in the application for extension of his services.
Let us apply the above stipulated instructions in a company under CIRP dealing with real estate projects.
Let us continue with our imaginary company called as W I Infrastructure Ltd, CIRP. Also let us consider it to have a few commercial projects/ allotments of land/residential projects as part of its existence.
It is also possible that some of its projects might have been taken over by ED or CBI due to the willful defaulter label of its original borrower who collected the money from all stake holders who are collectively called as financial creditors in a class (FICI), and others may include financial creditors like banks or other financial institutions.
In case the RP does not convene the COC meetings every month or does not brief the stakeholders on time even though enough timelines have already been provided by IB Code 2016.
The current stipulation under (b) enforces the RP to convene regular COC meeting every month. This is a genuine attempt to streamline the working of CIRP.
In case, as explained above, some of the commercial projects are under ED, by incorporating provision of separate resolution plan for each project, in this case for a residential project, the CIRP can generate interest among new investors who will look to invest in case the housing project has enough potential to generate income. Even the additional income generated under the residential project can easily be used to fight the cases of commercial projects.
Currently, such a provision does not exist. So, this condition has arisen due to a large number of recommendations given by home buyers to IBBI.
Let us visualize the instructions under (f). In case an information memorandum is prepared by RP for inviting investors to give a resolution plan, giving a fair value helps the investors to apply cost benefit calculations before undertaking the projects.
Many RPs have failed in the past to give periodical progress reports/approval of CIRP costs from COC and this has resulted in keeping the stakeholders in the dark.
Yes, this stipulation helps all stakeholders to gainfully benefit from periodical approval of CIRP costs from COC.
Why monitoring committee and the stipulation on the monthly fee payable to RP?
Many successful CIRP cases with successful implementation of their resolution plans have come across huge compensation for a RP who has succeeded in the task of bringing in an investor and also implement a successful plan to be executed.
This has also arisen after careful deliberations at the level of IBBI with all its stakeholders.
Conclusion:
Being an insolvency professional who has successfully got involved in many CIRP cases, like any one, I also gave similar suggestions to IBBI for consideration to expedite the CIRP cases. It is highly commendable for them to bring the necessary changes.
However, the following situations do exist which hinder the fast resolution of CIRP cases under the above code.
- Adjudicating authority is not in a position to dispose of a large number of cases pending for even for a couple of years. We, the insolvency professionals have heard of even successful resolution proposals duly approved by COC pending with AA for two or more years. This is a frustrating experience.
- Many RPs do not get a chance to argue their cases before AA since they have been pending for sometimes even 12 months.
- Due to timely intervention, avoidance of COC meetings will become a rarer event.
- Overall, it is expected that I B Code 2016 is on the right track to fulfill its objectives.
Reference
1. IBBI Announces Key Amendments to Corporate Insolvency Resolution Process Regulations
2. IBBI (Insolvency Resolution Process for Corporate Persons) (Amendment) Regulations, 2024
Disclaimer: Obviously, this write up helped adequately by IBBI website/instructions are informatory in nature and be guided accordingly. This does not constitute any legal advice
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