The government has notified changes in the insolvency regulations requiring every resolution plan submitted by the potential bidders to include the details of their beneficial owners who are ultimately going to take control of the distressed company post its transfer.
The move has come more than a month after the Insolvency and Bankruptcy Board of India (IBBI) had floated a discussion paper on this issue. Based on the feedback, the board has decided to amend the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.
“Every resolution plan shall include a statement of beneficial-ownership covering details of all natural persons who ultimately owns or controls the resolution applicant, together with the shareholding structure and jurisdiction of each intermediate entity,” the notification said.
Closing the Backdoor
The amendment is critical because it thwarts the previous owners of a company to make a backdoor entry after significantly reducing their debt burden.
Over the years, there have been instances where the past promoters of distressed firms formed complex corporate structures to hide their true identity. By mandating a specific statement, the regulator is trying to close the gap on opaque holding structures often used to obscure true ownership.
Forensic Scrutiny
Further, the board has asked the prospective bidders to file an affidavit stating that whether they are eligible (or not eligible) to take the benefits under the Section 32A of the Insolvency and Bankruptcy Code (IBC) that provides provides immunity to the new owner and its assets from prosecution under offences committed prior to their take over.
Experts said that from a forensic standpoint, the mandate to prove eligibility under Section 32A is significant because it ensures that the ‘Clean Slate’ protection against prior liabilities is granted only after rigorous scrutiny, preventing ineligible promoters from re-entering through proxy bids. “This amendment shifts the paradigm from simple compliance to deep-dive transparency, ensuring that creditors and the adjudicating authority have a crystal-clear view of who they are entrusting with the corporate debtor,” said Srinivasa Rao, partner & leader (forensic & risk advisory services) at Nangia Global.
