IBBI notifies successive amendments to CIRP regulations, 2016: enhanced disclosures, streamlined resolution process and greater stakeholder participation

Key Highlights of the Amendment Regulations: 

1. Streamlined Valuation Framework for MSMEs: For corporate debtors classified as Micro, Small and Medium Enterprises (MSMEs), the resolution professional is now required to appoint only one set of registered valuers, unless the CoC records reasons in writing for appointing two sets of valuers. This amendment is intended to reduce procedural costs and expedite CIRP proceedings involving MSMEs.

2. Enhanced Disclosure Requirements at CIRP Commencement: The amendments significantly expand the information required to be furnished by operational creditors under section 9 applications and corporate applicants under section 10 applications. Operational creditors must now provide GST-related filings, details of payments received, assignments, guarantees and pending recovery proceedings. Corporate applicants are required to submit extensive information relating to assets, liabilities, creditors, employees, litigation, statutory compliances, related party transactions, regulatory approvals, attached assets, government dues, employee-related dues, and pending investigations. These measures are expected to improve the quality of information available at the inception of CIRP and facilitate more efficient administration of the process.

3. Strengthening the Role of Resolution Professionals and Creditors: The amendments broaden the obligation to provide assistance and cooperation during CIRP to all persons covered under section 19 of the Code. Creditors are also required to provide relevant information and records concerning the assets and liabilities of the corporate debtor. Further, resolution professionals must communicate decisions admitting or rejecting claims, along with reasons, within seven days.

4. Introduction of Framework for Transfer of Guarantor Assets: A comprehensive framework has been introduced to operationalize section 28A of the Code, permitting transfer of assets of personal or corporate guarantors that have been taken into possession by creditors. The amendments prescribe the information to be placed before the CoC, disclosure requirements in the information memorandum and resolution plan, and mechanisms for coordination where the guarantor itself is undergoing insolvency proceedings.

5. Rationalization of CIRP Timelines and Withdrawal Process: The amendments revise the framework governing withdrawal of CIRP applications under section 12A by prescribing time-bound filing requirements and safeguards relating to payment of CIRP-related expenses. The timeline for filing the compliance certificate in relation to resolution plans has also been revised, and several statutory forms have been replaced by formats to be specified through IBBI circulars, allowing greater administrative flexibility.

6. Introduction of Dissolution and CIRP Restoration Mechanisms: The regulations now permit the CoC, by a 66% majority, to seek dissolution of a corporate debtor during CIRP where the available assets are insufficient even to meet insolvency and likely liquidation costs, or where liquidation would not yield meaningful value. A corresponding framework also enables restoration of CIRP before the passing of a liquidation order where circumstances justify revival of the process.

7. Greater Representation for Operational Creditors: The composition of committees consisting solely of operational creditors has been modified to include the eighteen largest unrelated operational creditors. In cases where fewer than eighteen unrelated operational creditors exist, all such creditors will form part of the committee. Further, where creditors other than scheduled banks and public financial institutions collectively hold more than sixty-six percent of the voting share in the CoC, the five largest unrelated operational creditors, including the three largest statutory authorities, must be invited to CoC meetings as observers. Their observations are required to be recorded in the meeting minutes.

8. Enhanced Oversight of CIRP Costs and Going Concern Operations: Resolution professionals are now required to place all CIRP costs incurred up to the first CoC meeting for approval and prepare a Going Concern Assessment Report analysing expected cash flows, operational requirements and risks of value erosion. Based on this assessment, the CoC must decide whether operations should continue and approve future CIRP costs. The amendments also introduce periodic reporting comparing actual costs against approved estimates.

9. Increased Transparency in Resolution Plan Evaluation: The CoC is now expressly required to record its deliberations and rationale regarding the feasibility and viability of resolution plans, expected realisable value for creditors as compared to fair and liquidation values, and the adequacy of market discovery efforts undertaken during the CIRP, including challenge mechanisms or re-invitation of plans where applicable. These changes are intended to strengthen transparency and improve the robustness of commercial decision-making during CIRP.

Conclusion

The amendments collectively seek to improve the efficiency, transparency and accountability of the corporate insolvency resolution framework while ensuring greater participation by stakeholders and better-informed decision-making by resolution professionals and committees of creditors.