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Insolvency board IBBI issued a discussion paper to provide clarity on various operational aspects including those related to coordinated resolution of interconnected entities and streamlining of submission of resolution plans. The paper proposes several amendments to address operational challenges in the resolution framework.
The IBBI has invited public comments on the discussion paper till February 25 through its website. In the discussion paper, the Insolvency Bankruptcy Board of India (IBBI) said, one of the major proposals is to strengthen the Committee of Creditors (CoC) decision-making process by mandating regular review of operational expenses, particularly leased properties.
This resolution would be required to present a comprehensive assessment of all substantial operational expenses, particularly focusing on leased properties protected under moratorium, to the CoC within 30 days of its formation.
To maintain continuous oversight, the amendment proposes quarterly review of these expenditures as a mandatory CoC meeting agenda. In a bid to improve coordination in resolving insolvency cases involving interconnected entities, the IBBI has proposed amendments allowing joint hearings, the appointment of a common resolution professional, and information sharing protocols.
The move aims to increase efficiency, reduce costs, and improve outcomes in cases where multiple interconnected entities undergoing CIRP simultaneously. The discussion paper also suggested making it mandatory for corporate debtors to submit a Statement of Affairs when facing insolvency proceedings under Section 7 of the Insolvency and Bankruptcy Code (IBC), where applications are filed by a financial institution.
"The statement of affairs will contain minimal but essential information about the corporate debtor. "This will include copies of the financial statements for the last three years, a brief overview of employee/workmen details, and information about where and under whose custody the books of accounts and records are maintained," the Board said.
IBBI has further recommended changes to the resolution plan submission process. All resolution plans, including non-compliant ones, would have to be presented before the CoC, accompanied by a compliance report from the resolution professional. This change will improve transparency and reduce potential disputes and litigations. To prevent delays and legal uncertainties post-approval of resolution plans, the Board has proposed an explicit restriction on seeking reliefs or modifications once a plan has been approved by the adjudicating authority.
The discussion paper also recommends the removal of the provision allowing the sale of corporate debtors as a going concern under liquidation norms. This change will streamline the liquidation process, reduce legal uncertainties, and potentially lead to faster resolution of cases. Further, IBBI observed such sales have led to lower recoveries compared to regular dissolution and have resulted in extended legal disputes.
In the context of personal guarantors, the board has proposed measures to ensure a procedural mechanism in cases where debtors fail to submit a repayment plan. The resolution professional would be required to report such instances to the adjudicating authority for necessary action.
