To curb backdoor entry of past promoters, and giving greater responsibility to the insolvency professionals, the Insolvency and Bankruptcy Board of India (IBBI) has asked resolution professionals (RPs) to place a detailed note on “Section 29A compliance” before the committee of creditors (CoC) when the resolution plans are considered by them.
Section 29A of the Insolvency and Bankruptcy Code (IBC) is a gatekeeper provision that lays down the ineligibility criteria for the bidders. It also ensures that those responsible for a company’s failure do not get to regain control of the company through proxy bids.
What did the IBBI circular say?
Further, the IBBI circular said that the RPs will have to ensure that deliberations and observations of the CoC – at the time of submitting the section 29A note – are properly recorded in the minutes.
“Due diligence with respect to section 29A compliance is paramount as it safeguards the integrity of the process by ensuring that only credible resolution applicants participate in the process. It also reduces the risk of legal challenges post-approval of the resolution plan,” the circular noted.
What do experts say?
Experts said that the circular reinstates the responsibility of the RPs in the process. “Section 29A was always there, and so were the undertakings and affidavits, but this makes it clear we cannot treat them as mere paperwork. RPs are expected to test eligibility, put their due diligence and findings in a note to the CoC, and make sure the CoC’s discussion on Section 29A is properly reflected in the minutes. That kind of clarity will only strengthen the process and reduce avoidable disputes later,” said Siddharth Srivastava, partner (restructuring & insolvency) at Khaitan & Co.
Various duties have been cast on the RPs and bidders under the IBC, 2016 and the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations. This includes Section 30 & Regulation 39 under which the bidder must submit an affidavit with the resolution plan confirming eligibility. Additionally, Regulation 36A(4) mandates RPs to mention in Form G the ineligibility criteria under Section 29A, and Regulation 36A(7) mandates bidders to submit an undertaking with the expression of interest confirming they are not ineligible. The regulations have also put an onus on the RPs to carry out due diligence to verify the claims of the bidder/s.
On November 6, the insolvency regulator had come out with a proposal asking the prospective buyers to disclose their beneficial owners while applying for the takeover of an insolvent company. The IBBI’s discussion paper said that prospective buyers will have to provide “a statement of beneficial-ownership in a format specified by the IBBI, covering details of all natural persons who ultimately owns or controls the PRA (prospective resolution applicant), together with the shareholding structure and jurisdiction of each intermediate entity.”