IBBI puts in place strict norms for resolution plan approval

Stricter rules are in place now for the approval process of resolution plans submitted under the insolvency law, wherein an applicant's antecedents and credit worthiness will be checked.
The amendments related to the corporate persons resolution process has been made amid rising number of cases being filed under the insolvency law and concerns in certain quarters on whether the promoter of a company under the insolvency process can submit a resolution plan.
"Now prior to approval of a resolution plan, the resolution applicants, including promoters, will be put to a stringent test with respect to their credit worthiness and credibility," an official release said today.

It is now clear that even promoters can submit resolution plan provided they are subject to strict disclosure requirements under the revised norms.
The Insolvency and Bankruptcy Board of India (IBBI) has amended the regulations to ensure that as part of due diligence before approving a resolution plan, "the antecedents, credit worthiness and credibility of a resolution applicant, including promoters" would be considered by the committee of creditors.
Under the Insolvency and Bankruptcy Code, which is implemented by the IBBI, any resolution plan has to be cleared by the committee of creditors. The resolution process is to be completed within 180 days and the deadline could be extended.

Once an application is admitted by the National Company Law Tribunal (NCLT) under the Code, then an insolvency resolution professional is appointed who would take care of the company concerned during the whole process.

The revised regulations make it incumbent upon the resolution professional to ensure that the plan presented contains relevant details to assess credibility of the resolution applicants, the release said.
The resolution applicants' details in terms of "convictions, disqualifications, criminal proceedings, categorisation as wilful defaulter as per RBI guidelines, debarment imposed by Sebi, if any," would have to be disclosed.
Information about any transaction with the corporate debtor in the last two years should also be furnished.

Further, the resolution professional has to submit details in respect of transactions, if any, that pertain to preferential, undervalued, extortionate credit or fraudulent transactions under the Code.
With these changes, the "resolution applicants, including promoters, are put to a stringent test with respect to their credit worthiness and credibility", the release said.
The amendments to the IBBI (Insolvency Resolution Process for Corporate Persons) Resolution Process, 2016 impose a greater responsibility on resolution professionals and the committee of creditors in discharging their duties, it added.
The Code became operational in December last year and it provides for a market-determined and time-bound insolvency resolution process.