On November 01, 2023, IBBI issued a Discussion Paper concerning proposed amendments in the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Process) Regulations, 2016 (CIRP Regulations). The following proposals have been made:

a. Approval of Committee of Creditors (CoC) for Insolvency Resolution Process Cost

RP has to get approval from CoC for all the insolvency resolution process costs incurred by him including costs incurred in running the business of the CD as a going concern. Accordingly, it is proposed to insert Regulation 31B as detailed below in the CIRP Regulations.

“31B. Approval for insolvency resolution process cost
The insolvency professional shall place before the committee, the operational status of the corporate debtor and shall seek approval for all the expenses including the expenditure incurred in running the business of the corporate debtor as a going concern, which are part of insolvency resolution process cost from the committee.”

b. Monthly CoC Meeting

It is proposed to establish a monthly mandate for conducting CoC meetings to ensure consistent check-ins, prompt feedback, and a platform for addressing any emerging concerns. Regular meetings also foster a collaborative spirit among stakeholders. Accordingly, Regulation 18 (1) of CIRP Regulations to be amended as follows:

Regulation 18(1)
“(1) A resolution professional may convene a meeting of the committee as and when he considers necessary and not more than thirty days should elapse between the date of one meeting and that of the next meeting.

c. Discussion of valuation methodology and report with CoC

Current CIRP Regulations specify that the valuation report be disseminated to the CoC only after the reception of resolution plans. The unavailability of this information constrains the CoC’s decisions regarding the eligibility criteria for PRA’s and the evaluation matrix, basing them on limited information. It is proposed that before the finalization of the valuation report, valuers shall explain the valuation methodology to the members of the committee in a meeting facilitated by the RP. Accordingly Regulation 35 (1)(a)of CIRP Regulations to be amended as follows:

Regulation 35 (1) (a)
“(1) Fair value and liquidation value shall be determined in the following manner:-
(a) the two registered valuers appointed under regulation 27 shall submit to the resolution professional an estimate of the fair value and of the liquidation value computed in accordance with internationally accepted valuation standards, after physical verification of the inventory and fixed assets of the corporate debtor;
Provided that the registered valuer shall explain the valuation methodology to members of the committee in a meeting facilitated by the resolution professional before computation of estimates.”

d. Disclosure of fair value in the Information Memorandum

To enhance the bidding process and quality of bids by the resolution applicants, it is proposed that the fair value of the CD should also be included in the Information Memorandum (IM). Disclosure of fair value in IM can help the Resolution Applicants gain better insights into the Corporate Debtors’ worth, facilitating more accurate and competitive bid formulations. Having access to fair value can streamline the due diligence process, ultimately leading to more viable and better-valued resolution plans. Accordingly, the following shall be added after clause (l) of Regulation 36(2) of CIRP Regulations

“(m) fair value.”

e. Continuation of process activities pending disposal of extension application by the Adjudicating Authority (AA)

To bring clarity on the continuation of the process when the application filed with the AA is pending for the extension orders and to enable the Resolution Professional (RP) to fulfil his responsibilities, it is proposed to clarify that the RP shall continue to discharge his responsibilities under CIRP, for the period when the application seeking extension of the CIRP is filed by the RP till the application for extension is decided by the AA. Accordingly, the following clarification is proposed to be issued in Regulation 40 of the CIRP Regulations.

Regulation 40
“Clarification: It is clarified that the resolution professional shall continue to discharge his responsibilities under the corporate insolvency resolution process, for the period when the application seeking extension of the corporate insolvency resolution process is filed by the resolution professional till the application for extension is decided by the Adjudicating Authority.”

f. Clarity in minimum entitlement to dissenting financial creditors

The discussion paper proposes the following:

i.Insertion of a new definition of ‘amount due in the event of liquidation’ as the lower of the
(i)amount that would have been paid to such creditors, if the amount to be distributed under the resolution plan had been distributed in accordance with the order of priority in section 53(1); or
(ii)the liquidation value as defined under these regulations has been distributed in accordance with the order of priority in section 53(1).
ii.The dissenting financial creditors shall be paid the ‘amount due in the event of liquidation’ and in priority over the assenting financial creditors.
iii.It is clarified that at no stage of implementation of the resolution plan financial creditors who voted in favor of the resolution plan shall be paid a higher percent of its dues, than the financial creditors who did not vote in favor of the resolution plan.

Accordingly, the following amendment is proposed:

1)The following definition of ‘amount due in the event of liquidation’ may be added under the CIRP Regulations by insertion under regulation 2(1)(k):

“(ka) “amount due in the event of liquidation” shall mean lower of the (i) amount that would have been paid to such creditors, if the amount to be distributed under the resolution plan had been distributed in accordance with the order of priority in sub-section (1) of section 53; or (ii) the liquidation value as defined under these regulations been distributed in accordance with the order of priority in sub-section (1) of section 53.”

2)Regulation 38(1)(b) shall be substituted as under:

“(1) The amount payable under a resolution plan –
…
(b) to the financial creditors, who have a right to vote under sub-section (2) of section 21 and did not vote in favour of the resolution plan, shall be paid amount due in the event of liquidation in priority over financial creditors who voted in favour of the plan.
Clarification: It is clarified that at no stage of implementation of resolution plan financial creditors who voted in favour of the resolution plan shall be paid higher percent of its dues, than the financial creditors who did not vote in favour of the resolution plan.

Illustration: If a creditor a dissented on a plan, he shall receive at least as much percent of its due amount as to be received by any assenting creditor at any stage. Here a plan has three phases. The dissenting creditor must be paid as below to meet the requirement of priority in payment.

the requirement of priority in payment.

g. Mandatory contents of the resolution plan

To ensure smooth and uninterrupted implementation of the resolution plan, it is proposed that a resolution plan may be submitted in two parts, wherein Part A of the plan will deal with the inflow of money (i.e., payment under the resolution plan (total value of the resolution plan), payment of insolvency resolution process cost, implementation and payment schedule, feasibility and viability of the resolution plan, etc.) and Part B will deal with payments to be made to each category of creditor and other stakeholders against their admitted claims.

Accordingly, Regulation 38 of CIRP Regulations shall be replaced by the following:

38. Mandatory contents of the resolution plan.

A resolution plan shall be prepared in the following two parts:

Part A of the resolution plan shall include the following:

1. 1. 1. the total realisable value being provided under the resolution plan;
      2. the payments to be made for insolvency resolution process costs;
      3. the term of the plan and its implementation schedule;
      4. the management and control of the business of the corporate debtor during its term;
      5. the detailed overview and experience of the resolution applicant;
      6. the sources of fund and its utilisation;
      7. a statement giving details if the resolution applicant or any of its related parties has failed to implement or contributed to the failure of implementation of any other resolution plan approved by the Adjudicating Authority at any time in the past;
      8. adequate means for supervising its implementation including provision for deposit in an escrow account, if any, of the amount for which there is dispute about the amount to be paid to a creditor or stakeholder out of the amounts provided in clauses (b) and (c) of sub-section (1) of this regulation;
      9. provides for the manner in which proceedings in respect of avoidance transactions, if any, under Chapter III or fraudulent or wrongful trading under Chapter VI of Part II of the Code, will be pursued after the approval of the resolution plan and the manner in which the proceeds, if any, from such proceedings shall be distributed;
      10. a resolution plan shall demonstrate that –
      • it addresses the cause olefault;
      • it is feasible and viable;
      • it has provisions for its effective implementation;
      • it has provisions for approvals required and the timeline for the same; and
      • the resolution applicant has the capability to implement the resolution plan.”

(2)Part B of the resolution plan shall provide the following:

(a) a statement as to how it has dealt with the interests of all stakeholders, including financial creditors and operational creditors, of the corporate debtor;

(b) the payments to be made to each category of creditor and other stakeholders against their admitted claims;

(c) the amount payable to the operational creditors shall be paid in priority over financial creditors; and

(d) the amount payable to the financial creditors, who have a right to vote under sub-section (2) of section 21 and did not vote in favour of the resolution plan, shall be paid in priority over financial creditors who voted in favour of the plan.

Provided that the committee shall recommend whether a resolution plan prepared in terms of clauses (1) and (2) shall have provisions for separate approval of Part A and Part B by the Adjudicating Authority.”

The link for the aforesaid discussion paper is as follows

https://ibbi.gov.in/uploads/whatsnew/b70daeb0fbec8cc61d1afc52e9e9fbb8.pdf