Key Amendments and Circulars in connection with the Insolvency and Bankruptcy Code, 2016 (IBC): A Quick Guide & Comprehensive Overview – By CA. Anuj Maheshwari

The Insolvency and Bankruptcy Board of India (IBBI) has on 31st January 2024 introduced certain amendments across various regulations under the Insolvency and Bankruptcy Code, 2016 and on 1st February 2024 issued circulars clarifying applicability of certain provisions. These changes and clarifications aim to streamline processes, enhance transparency, and strengthen the framework for insolvency resolution process, insolvency professionals and entities. In this guide, we will delve into the details of each amendment and provide insights into their implications.

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Key Amendments and Circulars in connection with the Insolvency and Bankruptcy Code, 2016 (IBC): A Quick Guide & Comprehensive Overview

Post Graduate Insolvency Programme (PGIP), Indian Institute of Corporate Affairs (IICA)
B. Com., ACA, ISA (ICAI), CCCAB (ICAI) and Trainee at NCLT, Indore Bench

Introduction:

The Insolvency and Bankruptcy Board of India (IBBI) has on 31st January 2024 introduced certain amendments across various regulations under the Insolvency and Bankruptcy Code, 2016 and on 1st February 2024 issued circulars clarifying applicability of certain provisions. These changes and clarifications aim to streamline processes, enhance transparency, and strengthen the framework for insolvency resolution process, insolvency professionals and entities. In this guide, we will delve into the details of each amendment and provide insights into their implications.

Insolvency and Bankruptcy Board of India (Bankruptcy Process for Personal Guarantors to Corporate Debtors) Regulations, 2019

Provision: Regulation 3. Eligibility of bankruptcy trustee- he, the insolvency professional entity of which he is a partner or a director, and all the partners and directors of the said insolvency professional entity are independent of the guarantor

Omitted (explanation for Independence):

a person shall be considered independent of the guarantor, if he- has not acted or is not acting as interim resolution professional, resolution professional or liquidator in respect of the corporate debtor.

Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Regulations, 2019

  • Provision: Regulation 4. Eligibility of resolution professional- if he, the insolvency professional entity of which he is a partner or a director, and all the partners and directors of the said insolvency professional entity are independent of the guarantor

 Omitted (explanation for Independence):

a person shall be considered independent of the guarantor, if he- has not acted or is not acting as interim resolution professional, resolution professional or liquidator in respect of the corporate debtor. 

  • New Insertion:

Regulation 17A. Meeting of the creditors. The resolution professional shall place the repayment plan as mentioned under section 105 in a meeting of the creditors for its consideration. Provided that where no repayment plan has been received within such period as stipulated under section 106, the resolution professional shall notify the same in a meeting of creditors.

  • The amendment lifts the restrictions on an insolvency professional (IP) being appointed as a resolution professional (RP) or bankruptcy trustee (BT) in the insolvency resolution process or bankruptcy process of personal guarantors (PGs) to corporate debtors (CDs). This removal applies even if the IP has previously served or is currently serving as an interim resolution professional, RP, or liquidator during the corporate insolvency resolution process (CIRP) or liquidation process of the CD. The purpose of this change is to enable the same IP to be appointed in both the corporate and personal insolvency and bankruptcy proceedings for enhanced coordination and harmonization of these processes.

However, previously, the same IP was prohibited from undertaking assignments for PGs, providing ample opportunities for other IPs to engage and offer their services. In cases involving PGs to CD, IPs were typically appointed by the Adjudicating Authority from the panel recommended by IBBI, ensuring a fair distribution of professional opportunities that might not have been available otherwise. Removal of this safeguarding provision could be proved to be prejudicial to such other IPs.

  • In the revised scenario, when a PG submits a repayment plan to the RP, the RP assesses its viability and presents a report to the Adjudicating Authority, along with a recommendation on whether to convene a meeting of creditors. If the RP deems such a meeting unnecessary, reasons for this decision are provided. Initially designed for expeditious resolutions in less complex cases, the provision did not mandate regular creditor meetings. However, recognizing the intricacies of PG cases involving intricate financial interdependencies and multiple creditors, the amendment now obligates the mandatory convening of creditors’ meetings. This shift aims to address the complexities and unique challenges inherent in PG cases, promoting a more thorough and collaborative approach to the resolution process. The amendment seeks to foster active participation and cooperation among all stakeholders, reinforcing a robust and equitable framework for addressing financial distress in PG cases.

Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) Regulations, 2017

New Insertions/ Changes:

  • For affidavit and documents (In Regulation 3):
    • Disclosure about pending proceedings or assessments before statutory authorities, and pending litigations, in respect of the corporate person.
    • The corporate person has made sufficient provision to meet the obligations arising on account of pending matters.
  • In Regulation 37:

Increase in frequency of meetings of contributories (earlier was in every 12 months; now it’s in every 270/90 days)

In the Status Report by the liquidator, the reasons for not completing the process within stipulated time period and the additional time required for completing the process should also be provided.

  • In Regulation 39:

Provision for distribution of any amount deposited into the Corporate Voluntary Liquidation Account through application by any stakeholder, who claims to be entitled to receive such amount (with permission of IBBI and intimation of same to Adjudicating Authority)

Previously, in voluntary liquidation cases, companies were not disclosing their ongoing legal disputes, using the voluntary liquidation process as a shield to evade litigation or assessments by statutory authorities. Consequently, there arose a necessity for applicants to provide this information before initiating voluntary liquidation. Additionally, they are now required to swear in an affidavit confirming that they have made adequate provisions to address any obligations arising from these pending matters.

Changes have also been made to the provisions regarding contributories meetings, facilitating a more frequent occurrence, crucial in the liquidation process. Furthermore, liquidators are now mandated to outline in their status reports the reasons for any delays in completing the process within the stipulated timeframe and the additional time required for completion. This obligation aims to motivate professionals to adhere to the time-bound resolution objective outlined in the IBC.

Moreover, the recent amendment permits any affected stakeholder to receive funds from the Corporate Voluntary Liquidation Account, contingent upon obtaining necessary approvals.

Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016

In First Schedule (Code of Conduct)

New Provision: Clause 22A. An insolvency professional may resign from the assignment, subject to the recommendation of the committee of creditors in a corporate insolvency resolution process, consultation committee in liquidation process, the debtor or the creditor in the insolvency resolution process of personal guarantor to the corporate debtor, as the case may be, and the approval of the Adjudicating Authority. Explanation.- The insolvency professional shall continue to discharge his duties, functions and responsibilities till the approval of resignation by the Adjudicating Authority.

New Explanations for IPAs acting as IPs:

  • The insolvency professional which is an insolvency professional entity may engage or appoint its partners or directors, as the case may be, for or in connection with any work relating to any of its assignment other than work related to valuation and audit of the debtor.
  • The insolvency professional which is an insolvency professional entity may provide any service, other than service related to valuation and audit, for or in connection with the assignment which is being undertaken by any of its partners or directors, as the case may be.

With this amendment, insolvency professionals (IPs) are now empowered to resign from any assignment for any reason. This provision for resignation was absent previously, and IPs believed that every professional assignment should allow for resignation. The idea is that professionals should not be compelled to undertake assignments against their will. However, to prevent potential misuse of this provision, it is now mandatory to have a recommendation from the relevant committee and subsequent approval from the Adjudicating Authority.

Furthermore, it has been explicitly clarified that insolvency professional entities (IPEs) acting as IPs can offer any services related to the insolvency resolution, liquidation, or bankruptcy process. However, due to considerations of independence, IPEs are restricted from providing Valuation and Audit services.

Insolvency and Bankruptcy Board of India (Model Bye-Laws and Governing Board of Insolvency Professional Agencies) Regulations, 2016

In the Schedule, in para VI, in clause 12A

Existing Provision: (6) An authorisation for assignment issued or renewed by the Agency shall be valid for a period of one year from the date of its issuance or renewal, as the case may be, or till the date on which the professional member attains the age of seventy years, whichever is earlier.

Amendment: (6) An authorisation for assignment issued or renewed by the Agency shall be valid for a period of one year from the date of its issuance or renewal, as the case may be: Provided that an authorisation for assignment issued or renewed by the Agency shall be valid till 30th of June of the year where the expiry of the period of one year falls from 1st of January to 30th of June, or till 31st of December of the year where the expiry of the period of one year falls from 1st of July to 31st of December: Provided further that if the professional member attains the age of seventy years during this period, the authorisation for assignment shall be valid till such date.

This amendment ensures uniformity in the Authorization for Assignment (AFA) cycle for insolvency professionals, fostering consistency and convenience for practitioners. The authorization now remains valid until the 30th of June or 31st of December of the year, depending on the expiry period.

Circular – Measures for rationalisation of the regulatory framework of Insolvency Professional Entities

1. Since, an IPE acting as IP would have multiple individuals as its partners or directors, as the case may be, a need is felt to clarify on the initiation of disciplinary proceeding in case of any contravention in relation to an assignment undertaken by an IP which is an IPE.

Clarification: It is hereby clarified that in case the assignment is undertaken by the IP, which is an IPE, the show-cause notice under regulation 11 of the IBBI (Inspection and Investigation) Regulations, 2017 shall be issued to:

  • its partner or director, as the case may be, who is an IP and was authorised to sign and act on behalf of it for the respective assignment; and/or
  • the IPE if in the opinion of the Board, there are either repeated instances of contravention against one or more partners or directors of the IPE or instance of systemic failure on the part of such IPE.

2. With the introduction of provisions allowing IPE to act as IP, it is not considered prudent to apply any limit on the number of assignments that may be undertaken by such IPE at this nascent stage.

Clarification: It is hereby clarified that clause 22 of Code of Conduct specified in First Schedule to IP Regulations (limit on number of assignments) does not apply to an IP which is an IPE.

3. With the introduction of provisions allowing IPE to act as IP, it is considered prudent that IPEs have an expanded role, and their fee should be market-determined at this juncture. Also, given their institutional framework, IPEs are better placed to negotiate their fees commensurate with their pool of in-house resources and diverse range of services offered by them as compared to an individual IP.

Clarification: It is hereby clarified that regulation 34B of CIRP Regulations does not apply to an IP, which is an IPE.

Circular – Measures for facilitating efficient conduct of the processes by the Insolvency Professionals

In several instances, it is observed that the Adjudicating Authority (AA) approves the resolution plan with provisions for constitution of implementation or monitoring committees, subject to meeting other requirements. Such implementation mechanism is proposed to ensure effective implementation of the approved resolution plan and effective management of the CD during the transitional phase. Since, IP is already familiar with the nuances of the business of CD, IP is normally given a role in the implementation or monitoring committee.

Clarification: In order to facilitate smooth implementation of the resolution plan, it is hereby clarified that an IP may render professional service in relation to implementation of resolution plan approved by the AA, provided details of such service are mentioned in the resolution plan approved by the AA.

Conclusion:

The recent amendments and circulars by the IBBI signify a commitment to enhancing the efficiency and transparency of the insolvency framework in India. These changes, along with the provided insights, aim to guide practitioners, students, and stakeholders through the evolving landscape of insolvency and bankruptcy regulations.

 

 


Disclaimer: The Opinions expressed in this article are that of the author(s). The facts and opinions expressed here do not reflect the views of IBC Laws (http://www.ibclaw.in). The entire contents of this document have been prepared on the basis of the information existing at the time of the preparation. The author(s) and IBC Laws (http://www.ibclaw.in) do not take responsibility of the same. Postings on this blog are for informational purposes only. Nothing herein shall be deemed or construed to constitute legal or investment advice. Discussions on, or arising out of this, blog between contributors and other persons shall not create any attorney-client relationship.


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