The Ministry of Corporate Affairs, Government of India, has issued a circular inviting comments from the public on the changes proposed to be made in the Insolvency and Bankruptcy Code, 2016 (“IBC”). The proposed changes relate to the admission of corporate insolvency resolution process (“CIRP”) applications, streamlining the insolvency resolution process, recasting the liquidation process, and the role of service providers under the IBC.
In a circular issued on 18.01.2023, the Ministry of Corporate Affairs has proposed numerous changes in IBC, including the following:
Mandatory to admit Section 7 application where occurrence of a default is established: while considering an application under Section 7 of IBC for initiation of CIRP by the Financial Creditors (“FC”), Adjudicating Authority (“AA”) is only required to be satisfied about the occurrence of a default and fulfilment of procedural requirements for this specific purpose (and nothing more). Where a default is established, it is mandatory for the AA to admit the application and initiate the CIRP.
Approval of multiple resolution plans in respect of the same CD: the Committee of Creditors (“CoC”) may approve that individual or collective assets of the Corporate Debtors (“CD”) may be resolved in one or more resolution plans. However, at least one of the plans ought to provide for insolvency resolution of the CD as a going concern, which may include provisions for its corporate restructuring and other mandatory requirements such as management of affairs of the CD after approval by the AA.
Improving recoveries for operational creditors in liquidation: unsecured creditors (Financial Creditors, Operational Creditors and any government or authority) other than the workmen and employees shall be treated equally for distribution under Section 53 of IBC.
Improving outcomes in real estate cases: during a CIRP or a project specific resolution process, the allottees may request ownership and possession of a completed unit of the real estate project, which cannot be permitted during the moratorium under the IBC. To benefit such allottees, Section 28 of IBC may be amended to enable the Resolution Professional to transfer the ownership and possession of a plot, apartment or building to the allottees with the consent of the CoC.
Reinstating CIRP: IBC to enable reinstatement of the CIRP during the liquidation process, where the liquidator continues to carry on the CD’s business, and it is possible to revive the CD as determined by the CoC.
Intermingling the assets of the CD and its guarantors: in certain cases while a building, plant, or machinery may belong to the CD, the land on which it is situated may belong to a guarantor. It is proposed to include such assets of the guarantor in the general pool of assets available for the CIRP for efficient resolution of the CD.
Protection of a resolution applicant post implementation of the resolution plan concerning civil liabilities: post approval of the resolution plan, no proceedings may be commenced or be continued by any government or authority regarding the claims arising before the commencement of the CIRP, unless otherwise provided for in the resolution plan, and such claims shall stand extinguished.
Direct Dissolution of the CD: CoC can request the AA to dissolve the CD if it believes that conducting the liquidation process in such circumstances may not be feasible or beneficial for the stakeholders.
Replacement of the liquidator: CoC to seek replacement of the RP conducting the CIRP from becoming the liquidator by a vote of at least sixty-six per cent of voting shares.
Use of technology: proposed e-platform to provide for a case management system, automated processes to file applications with the AA delivery of notices, enabling interaction of Insolvency Professionals (“IPs”) with stakeholders, storage of records of CD undergoing the process, and incentivising participation of other market players in the IBC ecosystem.
Increasing reliance on the record submitted with the Information Utilities during the Admission Process: before making an application to initiate CIRP, the relevant information regarding the occurrence of a default or dispute may be ascertained at the IUs by the Financial Creditors (“FC”), Operational Creditors (“OC”) and CDs.
Restricting the right of the promoters to propose an Interim Resolution Professional.
Empowering the AA to impose penalties for violations of IBC.
Expanding the applicability of the Pre-packaged Insolvency Resolution framework: Section 54A of IBC be amended to provide that the framework shall apply to prescribed categories of CDs in addition to the MSMEs.
The Circular mentions that suggestion/comments on the proposed changes, along with brief justification, may be submitted online by 5:30 PM on 07.02.2023 at the link mentioned in the Circular.