IBBI asks resolution professionals to file detailed 29A notes before CoC

IBBI has asked resolution professionals to place detailed Section 29A compliance notes before CoCs, stressing due diligence and transparency to reduce legal challenges in insolvency cases

The Insolvency and Bankruptcy Board of India (IBBI) has asked the resolution professionals (RP) to place a detailed note of compliance with section 29A of the Insolvency and Bankruptcy Code (IBC) before the committee of creditors (CoC) when the resolution plans are being considered.

 

Section 29A of the IBC lays down the criteria for persons who are not eligible to submit a resolution plan for a company undergoing a corporate insolvency resolution process.

 

The insolvency regulator has directed the RPs to ensure that the deliberations and observations of the CoC are properly recorded in the minutes.

 

The IBBI, in its circular dated November 18, said that due diligence with respect to section 29A compliance is paramount as it safeguards the integrity of the process by ensuring that only credible resolution applicants participate in the process. “It also reduces the risk of legal challenges post-approval of the resolution plan,” IBBI said.

 

In a discussion paper released in August, the insolvency regulator had proposed that the CoC should formally deliberate on the eligibility of the resolution applicant under section 29A.

 

The idea behind the proposed changes to IBC regulations is to bring more transparency and procedural fairness to corporate insolvency resolution.

 

The IBBI has been taking several measures to ensure that the integrity of the insolvency resolution process is maintained and no one ineligible draws the benefits of certain provisions and safeguards provided in the Code.

 

For instance, in a recent discussion paper, the Board had proposed detailed disclosures by bidders on beneficial ownership of their entities, to prevent the misuse of IBC’s “clean slate” concept.

 

IBBI had also proposed a carve-out for listed companies and their subsidiaries to strike a balance between transparency and practicality, since such entities already make extensive ownership disclosures under securities laws.

 

The IBC through its Section 32A provides immunity to the company undergoing insolvency and its property from prosecution for offences committed prior to the commencement of resolution process.

 

With respect to cases where there is a clash between IBC and the Prevention of Money Laundering Act, the IBBI had enabled resolution professionals to approach the special courts, but with several conditions.

 

The resolution professionals, IBBI has said, would be required to submit an undertaking that restituted assets are used only for the benefit of creditors, no advantage would flow back to the accused or promoters and that full reporting and compliance safeguards remain in place until resolution is completed.