A compact process proposed to speed up insolvency resolution can be initiated only by financial creditors having a combined share of at least 51% in debt, according to the draft regulations floated by the bankruptcy regulator. The defaulting firm in such cases must respond within 30 days to lenders’ notice seeking proceedings under the Creditor-initiated Insolvency Resolution Process (CIIRP).
Creditors need only to report to the National Company Law Tribunal (NCLT) and the bankruptcy regulator about their plan to initiate insolvency proceedings in a stipulated format, containing details such as proof of debt and verification of the existence and amount of default, according to the proposal.
This bypasses the time-consuming insolvency case admission process involving the NCLT.
The tribunal’s role will be limited mainly to imposing a moratorium on the stressed firm’s assets and approving the resolution plan, apart from hearing any objection raised by the corporate debtor to the launch of insolvency proceedings.
The draft regulations are part of a series of discussion papers released by the Insolvency and Bankruptcy Board of India (IBBI). Stakeholders can submit comments on the draft by April 28. Once finalised, the regulations will be notified for the operationalisation of the amended Insolvency and Bankruptcy Code (IBC) that received the President’s assent on April 6.
The amendments are aimed at expediting insolvency resolution to prevent erosion of stressed asset value and minimise liquidation prospects.
The regulator has specified timelines for stages of the CIIRP. The corporate debtor can file any objection to insolvency proceedings with the NCLT within 30 days of the lenders’ notice.
invite expressions of interest from investors within 50 days of the insolvency commencement date. Resolution plans, once cleared by the committee of creditors, must be submitted with the NCLT within 120 days, as per the draft.
The whole resolution process needs to be concluded in 150 days (extendable by 45 days) against 330 days (including litigation time) under the current corporate insolvency resolution process (CIRP).
The corporate debtor will continue to manage the affairs during the resolution process under scrutiny of the committee of creditors.
“This approach is likely to preserve business continuity, protect going concern value and minimise disruption, especially in sectors where operational stability is critical,” said Yogendra Aldak, executive partner at Lakshmikumaran & Sridharan attorneys.
However, it also raises concerns regarding governance and accountability, which have to be addressed, he said.
“The regulator’s discussion papers reflect a comprehensive attempt to operationalise the latest IBC amendments with a clear push toward better information flow, creditor control and timebound processes,” said Manmeet Kaur, partner at law firm Karanjawala & Co.
The categories of financial creditors and the stressed companies that would be covered by the CIIRP will be specified soon. “The CIIRP framework provides a structured and time-bound pathway for arriving at a commercially viable resolution for the corporate debtor by enabling early, creditor-led intervention upon default,” said Sachin Joglekar, vice-president and cogroup head (Structured Finance) at ratings firm Icra.
Other stipulations
The IBBI has proposed fresh regulations covering the CIRP, information utilities, voluntary liquidation, pre-packaged insolvency processes, as well as insolvency frameworks for personal guarantors and corporate debtors, grievance handling, inspection and investigation, to align with the latest IBC amendments.
Creditors need only to report to the National Company Law Tribunal (NCLT) and the bankruptcy regulator about their plan to initiate insolvency proceedings in a stipulated format, containing details such as proof of debt and verification of the existence and amount of default, according to the proposal.
This bypasses the time-consuming insolvency case admission process involving the NCLT.
The tribunal’s role will be limited mainly to imposing a moratorium on the stressed firm’s assets and approving the resolution plan, apart from hearing any objection raised by the corporate debtor to the launch of insolvency proceedings.
The draft regulations are part of a series of discussion papers released by the Insolvency and Bankruptcy Board of India (IBBI). Stakeholders can submit comments on the draft by April 28. Once finalised, the regulations will be notified for the operationalisation of the amended Insolvency and Bankruptcy Code (IBC) that received the President’s assent on April 6.
The amendments are aimed at expediting insolvency resolution to prevent erosion of stressed asset value and minimise liquidation prospects.
The regulator has specified timelines for stages of the CIIRP. The corporate debtor can file any objection to insolvency proceedings with the NCLT within 30 days of the lenders’ notice.
invite expressions of interest from investors within 50 days of the insolvency commencement date. Resolution plans, once cleared by the committee of creditors, must be submitted with the NCLT within 120 days, as per the draft.
The whole resolution process needs to be concluded in 150 days (extendable by 45 days) against 330 days (including litigation time) under the current corporate insolvency resolution process (CIRP).
The corporate debtor will continue to manage the affairs during the resolution process under scrutiny of the committee of creditors.
“This approach is likely to preserve business continuity, protect going concern value and minimise disruption, especially in sectors where operational stability is critical,” said Yogendra Aldak, executive partner at Lakshmikumaran & Sridharan attorneys.
However, it also raises concerns regarding governance and accountability, which have to be addressed, he said.
“The regulator’s discussion papers reflect a comprehensive attempt to operationalise the latest IBC amendments with a clear push toward better information flow, creditor control and timebound processes,” said Manmeet Kaur, partner at law firm Karanjawala & Co.
The categories of financial creditors and the stressed companies that would be covered by the CIIRP will be specified soon. “The CIIRP framework provides a structured and time-bound pathway for arriving at a commercially viable resolution for the corporate debtor by enabling early, creditor-led intervention upon default,” said Sachin Joglekar, vice-president and cogroup head (Structured Finance) at ratings firm Icra.
Other stipulations
The IBBI has proposed fresh regulations covering the CIRP, information utilities, voluntary liquidation, pre-packaged insolvency processes, as well as insolvency frameworks for personal guarantors and corporate debtors, grievance handling, inspection and investigation, to align with the latest IBC amendments.