IBBI June - AmitaDesai

Amendments in the Insolvency & Bankruptcy Law

IBBI Updates June 2024

1. Insolvency Professionals to Act as Interim Resolution Professionals, Liquidators, Resolution Professionals, and Bankruptcy Trustees (Recommendation) Guidelines, 2024

Insolvency and Bankruptcy Board of India (“IBBI”) is required to recommend the name of an Insolvency Professional (“IP”) for appointment as an Interim Resolution Professional (“IRP”), Resolution Professional (“RP”), Liquidator and Bankruptcy Trustee (“BT”) under Sections 16(4), 34(6), 97(4), 98(3), 125(4), 146(3), 147(3) of the Insolvency and Bankruptcy Code, 2016 (“Code”) on receiving reference from the National Company Law Tribunal and Debt Recovery Tribunal (“Adjudicating Authority”), in respect of the Corporate Insolvency or Individual Insolvency, as the case may be.

Further, the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019 and the Insolvency and Bankruptcy (Application to Adjudicating Authority for Bankruptcy Process for Personal Guarantors to Corporate Debtors) Rules, 2019 enables IBBI to share a Panel of IPs, who may be appointed as Resolution Professionals or Bankruptcy Trustee, with the Adjudicating Authority.

However, to avoid administrative delays in the appointment of the IP, the need was felt to prepare the Panel of IPs in advance and share with the Adjudicating Authority. Accordingly, the IBBI on June 05, 2024, issued the Guidelines namely, the Insolvency Professionals to act as Interim Resolution Professionals, Liquidators, Resolution Professionals, and Bankruptcy Trustees (Recommendation) Guidelines, 2024 (“the Guidelines”). The Guidelines inter-alia provide the following:

a) Eligibility of IPs:

No pending disciplinary proceeding, whether initiated by IBBI or the Insolvency Professional Agency.
Not been convicted at any time in the last 3 years.
Has submitted an expression of interest along with consent to act as IRP, RP, Liquidator, or BT.
Holds an Authorisation for Assignment.

b) Expression of Interest from IPs:

Board to invite expression of interest from IPs in Form A by sending an e-mail and IPs to send an expression of interest in Form A by the specified date. IPs are also required to provide details of the sector in which they have handled assignments or are handling assignments under the Code.
Expression of interest to be an unconditional consent by the IP to act as an IRP, RP, Liquidator, or BT.
IPs can submit an expression of interest by June 23, 2024. IBBI will send the Panel to the Adjudicating Authority by June 28, 2024.

c) Panel of IPs:

The Board will prepare a common Panel of IPs for appointment as IRP, Liquidator, RP, and BT and share the same with the Adjudicating Authority. The Panel will have a validity of 6 months and the Adjudicating Authority may pick up any name from the Panel for appointment of IRP, Liquidator, RP, or BT.
The Panel will have a zone-wise list of individual IPs based on the registered office of the IP. The Panel of Insolvency Professional Entity as IP will be valid across all NCLT benches. However, the zone criteria do not apply to the Insolvency Professional Entity as IP. The List of Zones is given in Annexure-1 to the Guidelines.

d) Sorting Criteria:

Eligible IPs based on experience in handling assignments of liquidation and corporate insolvency resolution process under the Code will be included in the Panel in the order of the volume of completed assignments in the order of experience.
Where two or more IPs get the same score, they will be placed in the Panel in the order of the date of their registration with the Board. The IP registered earlier will be placed above the IP registered later.

e) Conditions for IPs:

Inclusion of the name of IP in the Panel will be deemed acceptance to act as IRPs, Liquidator, RP, or BT.
IPs will not withdraw their consent or refuse to accept the appointment unless otherwise permitted by the Adjudicating Authority or IBBI. Any refusal without sufficient justification will be treated as deviation from consent and the name will be removed from the Panel for 6 months
It is desired that IP will not surrender his registration or membership to IBBI or Authorisation for Assignment during the validity of the Panel.
The Adjudicating Authority may appoint IP from the Panel at their discretion. However, the Adjudicating Authority may refer to or direct IBBI for the appointment of IP including the recommendation of IP, from or outside the Panel.

The link to the aforesaid Guidelines is as follows:
https://ibbi.gov.in/uploads/legalframwork/dab352944b3c9fa534f802054dfce1dd.pdf

2. Discussion paper on Reducing Compliance by Review of CIRP Forms submitted by Insolvency Professionals (IPs) to IBBI

The Insolvency and Bankruptcy Code, 2016 (“Code”) assigns specific responsibilities to an Insolvency Professional (“IP”) in the conduct of a Corporate Insolvency Resolution Process (“CIRP”). Further, IBBI and Insolvency Professional Agency (“IPA”) are responsible for monitoring the performance of IP under the Code which includes inter-alia, collection, maintenance, and dissemination of information and records relating to processes.

A set of forms was devised to facilitate the submission of records by IPs to the IBBI as well as for monitoring the performance of IPs.

To reduce the compliance burden and ensure a streamlined and efficient regulatory environment, the Financial Stability and Development Council advised the regulators to adopt a focused approach. Accordingly, at the behest of IBBI, the Indian Institute of Insolvency Professionals of ICAI, constituted a study group for making recommendations to alleviate the compliance burden faced by IPs. The Study Group submitted its report to IBBI recently.

Based on the aforementioned inputs and the need to eliminate duplication of compliances and streamline the reporting requirements for IPs, it is proposed to simplify and optimize CIRP forms. This will reduce the compliance burden on IPs while ensuring the availability of comprehensive and accurate information for effective monitoring and decision-making.

Accordingly, vide the Discussion Paper issued by IBBI on June 10, 2024, the Study Group has proposed the following:

Make changes to the CIRP forms as detailed in the Annexure-I of this Discussion Paper.
Amend the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 to give effect to the revised Forms and filing requirements. and
Issue necessary Circulars/guidelines to operationalize the revised forms and processes.

This change will enable IPs to plan their compliances efficiently and submit all Forms for their cases in one go every month. IBBI will also get a consolidated monthly update on the status of all CIRPs. It will reduce the multiple filing of Forms throughout the month.

The revised Forms and filing timelines aim to minimize duplicate submissions, auto-populate fields from existing data to the extent possible, seek information relevant to the stage of CIRP, and streamline the compliance process. This will help reduce the time and effort required for compliance by IPs.

The consolidation of various compliance requirements, such as disclosure of costs and relationships, onto the proposed centralized IBBI platform in place of diverse and dispersed portals managed by the IPAs, will further simplify the process and provide a single-window interface for IPs to fulfill their reporting obligations.

IBBI solicits public comments on the above proposals and the CIRP Forms which may be submitted electronically by July 01, 2024, in the manner provided in the Discussion Paper.

The link to the aforesaid Discussion Paper is as follows:
https://ibbi.gov.in/uploads/whatsnew/f3b5184ba55076cd66ff5dd96c47d0c6.pdf

The link to the Panel of IPs and IPEs as IPs prepared by the Guidelines, for appointment as IRP, liquidator, RP, and BT, for the period from July 1, 2024, to December 31, 2024, is as follows:
https://ibbi.gov.in/uploads/whatsnew/231ba3954dcd17968784d9bd444c52a8.pdf

3. Discussion paper on amendments to Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

On June 19, 2024, IBBI issued a Discussion Paper on amendments to the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (“the Regulations”).

This discussion paper solicits public comments on the following issues, namely:

a) Registered valuer to submit valuation report for the Corporate Debtor (CD) as a whole

Assets of the Corporate Debtor (“CD”) play a critical role in the Corporate Insolvency Resolution Process (“CIRP”); hence, accurate valuation is a significant determinant of the outcome of the process.

The Regulations point towards the appointment of a separate registered valuer in each asset class for the determination of fair value and liquidation value of CD and the appointment of a third valuer in case of significant differences in estimates of value in an asset class. Further, the Companies (Registered Valuers and Valuation) Rules, 2017 (Valuation Rules), point toward valuation to be carried out by a single valuer as a whole. Due to inconsistency in the provisions of Valuation Rules and the Regulations, divergent practices are being observed in the market.

Therefore, to streamline the process and remove ambiguities around the present framework of appointment of valuers for the valuation of the CD and to align the regulations with the valuation rules, it is proposed that the Regulations may be amended to specify that the Resolution Professional shall assign for carrying out the valuations of the CD as a whole to the Registered Valuer. The Registered Valuer may conduct the valuation as per the Valuation Rules taking inputs for other asset classes or get the valuation for an asset class conducted from another registered valuer, if required.

b) One valuation estimate for companies up to a certain asset size and for MSME companies

As mentioned above, the Regulations point towards the appointment of a separate registered valuer in each asset class for the determination of fair value and liquidation value of CD and the appointment of a third valuer in case of significant difference in estimates of value in an asset class. The cost of appointment of such valuers is a part of the insolvency resolution process cost.

In view of the above it is proposed that in the Corporate Insolvency Resolution Process of CDs having asset size up to Rs. 1000 crore and in CIRP of CDs classified as MSME, as a default position, RP to appoint only one registered valuer for providing the estimates of the fair value and the liquidation value. However, keeping in view the complexities so involved, if CoC decides to have two valuers, it has to record the reasons for the same before the RP takes steps for such appointments.

c) Voting by authorized representative before appointment by Adjudicating Authority

If there are creditors in the books of accounts of a Corporate Debtor (“CD”) the interim resolution professional (“IRP”) obtains the consent of three insolvency professionals (IP) to act as Authorised Representatives (“AR”) and indicates their names in the public announcement. The creditor in a class indicates its choice of an IP to act as its AR. The IRP selects the IP, who is the choice of the highest number of Financial Creditors in the class and makes an application before the Adjudicating Authority for his appointment as the AR. The Adjudicating Authority appoints the AR before the first meeting of the Committee of Creditors (“CoC”).

In some cases, the appointment of the AR gets delayed, and as a consequence, the AR is not able to attend the meeting(s) of the CoC till his appointment which hinders the representation of creditors in class from the CoC and their ability to exercise their rights.

In view of the above, it is proposed that the IRP along with the request for appointment of the IP who is the choice of the highest number of Financial Creditors in the class, shall also intimate the Adjudicating Authority for his continuation in interim to perform his duties in the intermediate period till the decision of Adjudicating Authority is available on his appointment or otherwise.

d) Release of guarantees in the resolution plan

There have been multiple orders of various judicial authorities delving into the diverse facets of the issue regarding the treatment of guarantees in a resolution plan, sometimes even in a contradictory manner. To have clarity in this regard, it is proposed to follow the approach of the Hon’ble Apex Court in the matter of Lalit Kumar Jain v. Union of India, wherein it was clarified that approval of a resolution plan of a Corporate Debtor does not automatically release its guarantors from their liability.

Thus, to ensure that there is clarity on the rights of the financial creditor to enforce recovery under guarantee agreements, it is proposed that CIRP Regulations be amended to clarify that the resolution plan submitted by the resolution applicant shall not extinguish the rights of the creditors to proceed against guarantors and enforce realization of guarantees governed through various guarantee agreements.

The public comments on the above proposals may be submitted electronically by July 140, 2024 in the manner provided in the Discussion Paper.

The link to the aforesaid Discussion Paper is as follows:
https://ibbi.gov.in/uploads/whatsnew/4586800687c5c20cd76801599b1757af.pdf

4. Filing Forms to monitor liquidation processes under the Insolvency and Bankruptcy Code, 2016, and the regulations made thereunder

The Insolvency Professional (“IP”) acting as a Liquidator, in addition to inviting claims from stakeholders, sale of assets, and distributing proceeds to stakeholders, is also required to ensure compliance with legal requirements and reporting to the Adjudicating Authority and IBBI. Presently, the IPs submit the details regarding the liquidation process to IBBI through emails, which is time-consuming and inefficient.

To ease the compliance burden for IPs and to facilitate systematic and transparent record-keeping and seamless reporting a set of electronic forms has been developed by IBBI to capture the details of the liquidation process. IBBI vide Circular No. IBBI/LIQ/73/2024 (“the Circular”) dated June 28, 2024, has mandated the filing of the said electronic forms to monitor liquidation processes under the Insolvency and Bankruptcy Code, 2016, and the regulations made thereunder.

Form No.	Period Covered and Scope	Timeline
LIQ 1	From Commencement of Liquidation till Public Announcement: This includes details of the Liquidator, Corporate Debtor (CD), and the liquidator’s fee	On or before the 10th day of the subsequent month, after a public announcement has been made.
LIQ 2	From Public Announcement to Progress Report: This includes details of valuation, sale, litigations, PUFE, SCC meetings, Receipts, and Payments.	On or before the 10th day of the subsequent month, after submission of the Progress report to the Adjudicating Authority.
LIQ 3	From last Progress Report to Application for Dissolution: This includes details of unclaimed proceeds, sale, litigations, PUFE, Realisation, distribution of proceeds, Receipts, and Payments. (The details required in these forms are carried forward from the last Progress Report and hence need not be filled again)	On or before the 10th day of the subsequent month, after submission of the Dissolution /closure application to the Adjudicating Authority.
LIQ 4	From Application for Dissolution to Order for Dissolution: This includes details of, the distribution of proceeds, Receipts and Payments, etc. (The details required in these forms are carried forward from the last Progress Report and hence need not be filled again)	On or before the 14 days of passing of the order for dissolution of corporate debtor or closure of the liquidation process by the AA.

The Forms developed by IBBI on an electronic platform have been hosted at https://www.ibbi.gov.in. The IP handling the liquidation assignment shall access the platform with a unique username and password provided by the IBBI and upload/submit the Forms, along with relevant information and records, after affixing DSC or e-signing.

The timelines for filing the Forms through the electronic platform:

Sr. No.	Type of Case	Timeline
1	Where a liquidation order is passed on or after issuance of the Circular.	IP shall file the Forms within the prescribed timeline for all cases.
2	Cases in which no application for dissolution of the corporate debtor/closure of the liquidation process has been filed.	IP shall file the Forms LIQ 1 and LIQ 2 (for the March 24 quarter) latest by 30th September 2024.
3	Cases where an application for dissolution of the corporate debtor/closure of the liquidation process has been filed with Adjudicating Authority	IP shall file the Forms LIQ 1 and LIQ 2 (for the last quarter of the process), and LIQ 3 by 30th September 2024.
4	Cases where an order for closure of the liquidation process or dissolution of the corporation debtor has been ordered by Adjudicating Authority	IP shall file Forms LIQ 1 and LIQ 2 (for the last quarter of the process), LIQ 3, and LIQ 4 by 30th September 2024.

An IP who does not comply with applicable provisions of the Code and the Regulations made thereunder shall be liable for:

failure to file a Form along with relevant information and records,
inaccurate and incomplete information and/or records filed in or along with a Form.

The link to the aforesaid Circular is as follows:
https://ibbi.gov.in/uploads/legalframwork/2024-06-28-175739-sorm2-a774e476af9744be8fb954b45ef5785b.pdf

5. Filing Forms to monitor Voluntary liquidation processes under the Insolvency and Bankruptcy Code, 2016, and the regulations made thereunder

In case of a voluntary liquidation initiated by a Corporate Person (“CP”), the insolvency professional (“IP”) acting as a Liquidator, in addition to inviting claims from stakeholders, prepares a list of stakeholders based on verified claims, sale of assets and distribution of proceeds to stakeholders, is also required to ensure compliance with legal requirements and reporting to the Adjudicating Authority and IBBI. Presently, the IPs submit the details regarding the liquidation process to IBBI through emails, which is time-consuming and inefficient.

To alleviate the compliance burden for IPs and to facilitate systematic and transparent record-keeping and seamless reporting a set of forms on an electronic platform has been created by IBBI to capture the details of the voluntary liquidation procedure. IBBI vide Circular No. IBBI/LIQ/74/2024 (“the Circular”) dated June 28, 2024, has mandated the filing of the said electronic forms to monitor voluntary liquidation procedure under the Insolvency and Bankruptcy Code, 2016, and the regulations made thereunder.

An Overview of the Forms is as below:

Form No.	Period Covered and Scope	Timeline
VL 1	This includes details of the Corporate Debtor (CD) and the details of the Voluntary Liquidation Process.	On or before the 10th day of the second month after the public announcement.
VL 2	Details of the meetings of contributors with the reasons for delay in the process and details of replacement of liquidator, if any.	On or before the 10th day of the subsequent month, after the meeting of contributories or replacement of liquidator.
VL 3	Details of dissolution application, details of Unclaimed Proceeds, Details of realization and distribution made to stakeholders, Details of Pending litigation, Detection of Fraud or Insolvency, if any.	On or before the 10th day of the subsequent month, after submission of the dissolution application of the CP or withdrawal/suspension application for the voluntary liquidation process, to the Adjudicating Authority.
VL 4	Details of order for Dissolution: This includes details of, the distribution of proceeds, Receipts and Payments, etc. (The details required in these forms are carried forward from the VL-3 form and hence need not be filled again)	On or before the 14 days of passing of the order for dissolution of the CP or withdrawal/suspension of the voluntary liquidation process.

For smooth filing of these Forms, a platform is hosted on the IBBI website at https://www.ibbi.gov.in. An IP shall access the platform with a unique username and password provided by the IBBI and upload/submit the Forms, along with relevant information and records, after affixing DSC or e-signing.