The Central Government on Friday notified the Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules, 2019.
These rules fill the legislative lacuna by setting out a special framework for insolvency and liquidation process of Financial Service Providers (FSPs). Considerably, last year, NCLAT had unequivocally held that FSPs such as non-banking financial companies are outside the purview of the Insolvency and Bankruptcy Code.
The Rules stipulate certain modifications in the corporate insolvency and liquidation proceedings prescribed by the main Code so as to address the exigencies until a full-fledged enactment in that behalf is passed. Other than the modifications so made, the provisions of the Code for Corporate Insolvency Resolution Process shall apply to the FSPs mutatis mutandis.
As per the new Rules, in order to initiate the resolution process of an FSP, an application in that behalf must be made by the appropriate regulator. Once the application is admitted, an administrator will be appointed by the adjudicating authority, who shall have the same responsibilities and powers as that of an insolvency professional.
The resolution plan shall consist of a statement explaining how the resolution applicant satisfies the requirements of engaging in the business of the financial service provider.
Upon approval of the resolution plan by the committee of creditors, the Administrator shall seek 'no objection' of the appropriate regulator to the effect that it has no objection to the persons, who would be in control or management of the financial service provider after approval of the resolution plan. In case an appropriate regulator does not refuse 'no objection' within forty-five working days of receipt of such application, it shall be deemed that 'no objection' has been granted.
An interim moratorium shall commence on and from the date of filing of application to initiate the resolution process, till its admission or rejection.
In case an FSP wishes to initiate voluntary liquidation proceedings under section 59 of the Code, it must obtain prior permission of the appropriate regulator.
License of FSP
The license or registration that authorizes an FSP to engage in the business of providing financial services shall not be suspended or cancelled during the interim-moratorium or during the liquidation process, unless an opportunity of being heard is provided to the liquidator.
Third Party Assets
The Rules also clarify that the administrator shall take control of all third party assets that are in the FSP's possession and that the provision of moratorium shall not be applicable to such assets.
The appropriate regulator is also empowered to, where it deems necessary, constitute an Advisory Committee, within 45 days of the insolvency commencement date, to advise the Administrator in the operations of the financial service provider during the resolution process.
Click Here To Download Notification