IBBI proposes bidders disclose beneficial ownership in their entities

The insolvency regulator has proposed mandatory beneficial ownership disclosures by bidders under the Insolvency and Bankruptcy Code to improve due diligence and prevent misuse of Section 32A immunity

In order to prevent the misuse of Insolvency and Bankruptcy Code’s (IBC’s) “clean slate” concept, the insolvency regulator has proposed detailed disclosures by bidders on beneficial ownership of their entities. The Insolvency and Bankruptcy Board of India (IBBI) has invited public comments on its proposed template of disclosures released in a discussion paper titled “Measures to Enhance Integrity of the Corporate Insolvency Resolution Process”.

 

“The template requires the prospective resolution applicant (PRA) to disclose all natural persons having ultimate ownership or control, together with jurisdictional and structural details of all intermediate entities forming part of the ownership chain,” the IBBI said.

 

The draft template, the insolvency regulator said, has been modelled on the latest regulatory framework prescribed by the Reserve Bank of India (RBI) aligning the insolvency framework with other financial sector regulations.

 

“By mandating uniform, detailed disclosures of ultimate beneficial owners and an affidavit affirming eligibility for Section 32A immunity, the framework will enhance transparency, enable the committee of creditors (COCs) and resolution professionals (RPs) to conduct meaningful due diligence, and safeguard against benami, proxy, or conflicted applicants,” said Sonam Chandwani, managing partner, KS Legal and Associates.

 

The IBBI has 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.

 

“This initiative reflects the growing maturity of India’s insolvency framework. It moves the process beyond a purely mechanical, time-bound resolution towards one that embeds principles of good governance and ethical participation,” said Sukrit Kapoor, partner, King Stubb & Kasiva, Advocates and Attorneys.

 

Through Section 32A, the IBC provides immunity to the company undergoing insolvency and its property from prosecution for offences committed prior to the commencement of the resolution process. This is subject to satisfaction of specified conditions — particularly a bona fide change in management and control.

 

In order to ensure this provision is not misused, the Code needs clear identification of persons who ultimately own or control the PRA.

 

The proposed framework by the IBBI requires resolution applicants to submit an affidavit specifying whether they are eligible for the benefit under Section 32A.

 

In its circular issued on Tuesday, the IBBI enabled RPs to approach special courts handling Prevention of Money Laundering Act (PMLA) cases involving financial crimes.

 

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

Know your bidder

• Requires prospective resolution applicants to disclose all natural persons having ultimate ownership 
• Jurisdictional and structural details of intermediate entities forming part of the ownership chain also need to be disclosed
• The IBBI has modelled the disclosure norms on the latest regulatory framework prescribed by the RBI
• Aligns insolvency framework with financial sector regulations