To boost CIRP outcomes, IBBI limits change in resolution plan to once

Gives option for a challenge mechanism, curbs discretion of CoC in considering certain resolution plans.

In a move that could improve the timelines and outcomes of the corporate insolvency resolution process (CIRP), the amended regulations have put a limit on the number of times a resolution plan can be modified to one. It has also given the option to the committee of creditors to instead go for a challenge mechanism to enable resolution applicants improve their plans.

The amended regulations notified by the insolvency and bankruptcy board of India (IBBI) also allow the resolution professionals to modify the invitation for expression of interest, just once.

The insolvency regulator has also laid ground for a code of conduct for the committee of creditors (CoC) in future in the latest amendment. It has said, “The committee and members of the committee shall discharge functions and exercise powers under the Code and these regulations in respect of corporate insolvency resolution process in compliance with the guidelines as may be issued by the Board.”

IBBI has also curbed the discretion of the CoC to an extent by stating that the committee of creditors would not consider any resolution plan after the time it has specified under section 36(B). CoC is also not allowed to consider any resolution plan received from a person who does not appear in the final list of prospective resolution applicants.

Experts said that the changes would bring about much needed certainty to timelines and should give confidence to credible bidders on the sanctity of the process.

“The amendments seek to address some specific aspects highlighted in the Standing Committee report on lender decision making and process adherence. We will have to wait and see what the CoC Code of Conduct entails and how it can be implemented,” said Dinkar Venkatsubramanian, partner, EY.

The revised regulations follow the 32nd report of the Parliamentary Standing Committee on finance which had recommended that there was an urgent need to have a professional code of conduct for the CoC, which will define and circumscribe their decisions, as these have larger implications for the efficacy of the Code.

“The IBBI has taken away some discretion from the CoC in considering the resolution plans submitted after the stipulated timeline and also hinted at future guidelines for the committee and its members, which do not exist as of now. Limiting the modifications would also ensure that timelines are adhered to,” Anoop Rawat, partner, Insolvency & Bankruptcy - Shardul Amarchand Mangaldas & Co.

The standing committee had recommended that the IBC be amended so that no post hoc bids are allowed during the resolution process. It said that when the invited bidders are asked to submit their respective resolution plans and when these resolution plans are evaluated by the CoC, suddenly other bidders may emerge and submit their own resolution plans.

“These bidders typically wait for the H1 (highest) bidder to become public, and they then seek to exceed this bid through an unsolicited offer that is submitted after the specified deadline. Currently, the CoCs have significant powers to accept late bids and these unsolicited bids create a huge delay,” its report said.

“We can definitely anticipate an improvement in the process as well as timelines in the completion of CIRP as the change has clarified upto how many time amendments or modification that can be allowed in the Expression of Interest or in the Resolution Plan,” Daizy Chawla, senior partner, Singh & Associates.

Chawla also said that the provision for challenge mechanism would also reduce litigations filed before the adjudicating authority.