The Insolvency and Bankruptcy Board of India (“IBBI”) released a discussion paper (“Discussion Paper”) (read here) on 4 February 2025, inviting comments from the public on its proposal to streamline the Corporate Insolvency Resolution Process (“CIRP”), the liquidation process as well as the insolvency resolution and bankruptcy process for personal guarantors. In this update, we have summarised the key proposals outlined in the Discussion Paper.
- Review of Expenditure on Goods and Services during CIRP: In order to reduce the accumulation of operational costs, especially with respect to leased property during the moratorium, a provision is proposed to be introduced to the CIRP Regulations ensure consistent review of such costs by the Committee of Creditors (“CoC”). Further, IBBI has attempted to address the misuse of Section 14(2) of Insolvency and Bankruptcy Code (“Code”) read with Regulation 32 of the CIRP Regulations, 2016 which ensures access to essential services like electricity and water during the moratorium period to the extent these are not a direct input to the output produced or supplied by the corporate debtor. According to the IBBI, the protection of moratorium is being incorrectly applied to these services even when they are being used as a direct input for production or supply by the Corporate Debtor (“CD”). In this regard, it is proposed to replace the illustration in Regulation 32 to better demonstrate the distinction between essential and non-essential services during the CIRP.
- Coordinated Insolvency Resolution for Interconnected Entities: The current framework lacks mechanisms to efficiently handle insolvency for interconnected entities within complex corporate structures, resulting in loss of time and resources. To address the same, the IBBI has proposed to introduce provisions for joint hearings, appointment of common resolution professionals and establishment of information-sharing protocols. This will help in aligning timelines of insolvency of interconnected entities and thereby, streamline the process.
- Presentation of all Resolution Plans before the Committee of Creditors: IBBI has proposed for incorporation of a mandatory obligation on the resolution professional (“RP”) to present all resolution plans received by him/her before the CoC irrespective of whether the plan complies with Section 30(2) of the Code. The same is proposed to ensure transparency in CIRP by providing opportunity to evaluate each plan submitted for revival of the CD.
- Mandatory Submission of Statement of Affairs by Corporate Debtors: To mitigate any information asymmetry between the CoC and RP, the IBBI proposes that in cases under Section 7 of the Code, the CD must submit its statement of affairs along with its reply to the application filed under Section 7 of the Code. This statement of affairs will contain minimal but essential information, including financial statements for the past three years, employee details in brief, and the information about custody of books and records.
- Reliefs and Concessions subsequent to approval of Resolution Plan: It has been proposed to amend the CIRP Regulations to explicitly state that no modifications may be made to the resolution plan once the same has been approved under Section 31 of the Code. This amendment is to ensure uncertainties in the implementation of resolution plans are eliminated.
- Incentivizing Interim Finance Providers: Interim Finance (“IF”) provides crucial funding during the CIRP to maintain the CD's operations and facilitate resolution. In this regard, IBBI has noted limited engagement of IF providers fundamentally due to issue of information asymmetry. Under the existing regime, these providers lack direct access to CoC meetings. This results in limited visibility into the CIRP's progress and hampers their ability to make informed decisions about funding requirements. Therefore, the IBBI has proposed introduction of provisions to allow the CoC to invite IF providers to attend CoC meetings as observers without voting rights. This would maintain the autonomy of the CoC, while allowing IF providers the room to monitor the CIRP.
- Disclosure and Treatment of Avoidance Transactions: Currently, the CIRP Regulations do not provide for a comprehensive disclosure of identified avoidance transactions in the Information Memorandum (“IM”), and its future updates. Further, there is no clear provision that updated versions of the IM be provided to the CoC and prospective resolution applicants. In many cases, prospective resolution applicants do not have access to complete information about avoidance transactions before submitting their plans. This leads to lack of transparency and unavailability of vital information. To address this, provisions are proposed to be introduced to enhance disclosure requirements and establish clear linkages between the timing of such disclosures and their treatment in resolution plans.
- Request for resolution plans for part wise resolution of Corporate Debtor: Regulation 36B (6A) of the CIRP Regulations 2016 requires RP to invite plans for the CD as a whole before seeking asset-specific plans. However, this practice leads to delays causing reduction of asset value. To address the same, the IBBI has proposed that the resolution plans for both, the CD as a whole and specific assets of the CD, can be submitted for the approval of the CoC simultaneously.
- Empowering the CoC for Expedited Implementation of Resolution Plans: Significant concerns about value erosion during the period between the submission of resolution plans and their final approval by the Adjudicating Authority have been raised. To counter this, the IBBI has proposed a two-stage approach. In the first stage, the Adjudicating Authority may grant early approval of the financial bid and basic implementation framework of the resolution plan. This would allow the resolution applicant to promptly take over and begin implementation. In the second stage, the Adjudicating Authority conducts subsequent hearings to address inter-creditor disputes, distribution matters, and other related aspects. This two-staged approach helps in reducing the uncertainty period and provides a better implementation pathway and eventually helps in enhancing value for stakeholders.
- Non-receipt of Repayment Plan under Insolvency Resolution of Personal Guarantor: In cases dealing with insolvency resolution of personal guarantors, currently there exists an ambiguity as to what the next step would be when the Adjudicating Authority admits an application for insolvency resolution, but the debtor fails to prepare a repayment plant. In order to eliminate this ambiguity, the IBBI has proposed an amendment to the IBBI (Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Regulations, 2019. This amendment would require the RP to notify the Adjudicating Authority of the non-submission of a repayment plan. Based on this notification, the Adjudicating Authority can terminate the insolvency resolution process which would enable the debtor or creditor to promptly file for bankruptcy.
- Sale of Corporate Debtor as a going concern: IBBI has observed that entry of the CD into the stage of liquidation itself implies the inability of the CD to continue as a going concern. In this regard, the IBBI has proposed the omission of the concept of selling the CD as a going concern in liquidation. According to the IBBI, this change would streamline the liquidation process and reduce legal uncertainties and potentially lead to faster resolution of cases. Further, the IBBI is of the view that as the IBBI Liquidation Regulations, 2016 already provide for slump sale of assets and that they will continue to address situations where the assets of the CD need to be sold together for better realization.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
