Former employees and entities rendering services to a company that is undergoing insolvency process will be obligated to share information with the resolution professionals, as per the Insolvency and Bankruptcy Code (IBC) amendments approved by Parliament recently.
Earlier, RPs could seek information only from the existing “personnel” during the corporate insolvency resolution process (CIRP). But their nature of work involves getting details on past transactions or financial statements of a company, they often would not get assistance from past employees or service providers like auditors and legal advisors (of the company) that resulted in significant delays.
Wider powers for resolution professionals
“The latest amendments have extended the powers of RPs. Since they need information to check past financials and avoidance/fraudulent transactions, they can now call upon anybody who has ever worked with the company for assistance under the new rules,” said an IBC lawyer.
“These changes have been introduced under section 19 of the Act because when RPs didn’t receive assistance, they would approach National Company Law Tribunal (NCLT), and it was causing delays,” said Surendra Raj Gang, partner at Grant Thornton India.
Experts said that the purpose of this amendment is to make the job of RPs easier. Due to the lack of cooperation from former employees and directors, the resolution processes are subjected to inordinate delays. The IBC prescribes a 180-day period for completion of the CIRP, which can be extended to 270 days. These timelines are meant to ensure timely resolution of corporate debtors but in a majority of the cases, these timelines are not adhered to resulting in more liquidations.
Tackling delays and fraudulent practices
Further, the breach of the timelines leads to erosion of asset value, and increases the costs for lenders and corporate bidders.
“The clause seeking cooperation from service providers, including companies and people, has been specifically introduced because the corporate debtor would create a dubious web of companies to provide services to their main company. Additionally, in many cases, we have seen that auditors resign from a company when a fraud is detected. During CIRP, these auditors would quote their code of ethics to not cooperate with RPs. These changes would likely put an end to this,” said the IBC lawyer quoted above.
As per the latest amendments, in case these persons fail to cooperate, RPs can submit an application with the adjudicating authority to direct them to comply.
In mid August, the finance minister Nirmala Sitharaman introduced the IBC (Amendment) Bill, 2025 in the Lok Sabha, by including provisions related to group insolvency, cross-border cases, and a creditor-led process to expedite resolution of bankrupt companies. The bill has been referred to the select committee.