The Insolvency and Bankruptcy Board of India (IBBI) has proposed a series of changes in the insolvency rules that will plug gaps in insolvency costs and the treatment of delayed claims in addition to bringing in more transparency in the approval of resolution plans by the committee of creditors (CoC).
Through a discussion paper, the insolvency board said that even though the commercial wisdom of the CoC remains supreme in the approval of resolution plans, however, certain factors – such as expected recovery vis-à-vis liquidation value, fair market value, credibility and track record of resolution applicants – must be formally in CoC’s meeting while evaluating resolution plans. The enhanced documentation is expected to make the CoC’s decision-making more transparent, and provide evidentiary support in the event of judicial scrutiny.
Strengthening Accountability
“The absence of consistent documentation standards and structured disclosures has often led to avoidable disputes and delays. When processes are not clearly recorded or communicated, stakeholders tend to challenge outcomes, and that uncertainty impacts timelines and value,” said Vishwas Panjiar, founder of SVAS Business Advisors.
Recognising the operational challenges faced by interim resolution professionals (IRPs) in the initial phase of the insolvency process, especially before the constitution of CoC, the discussion paper has said that IRP have to incur essential costs necessary to maintain the company as a going concern, even prior to the CoC’s formation, and such costs have to be fully disclosed to the CoC in its first meeting. Additionally, the IRP will be required to submit a ‘Going Concern Assessment Report’ at the first CoC meeting. This report has to include estimated income and expenditure statements, projected cash flows, working capital requirements, and an assessment of potential value erosion if operations are not continued.
Protecting Operational Integrity
The proposed regulations that the powers to adjudicate delayed claims rests exclusively with the National Company Law Tribunal (NCLT). It was found that in some cases, the delayed claims which were otherwise acceptable to the RPs were not placed before NCLT solely because these claims didn’t receive recommendations from the CoC. “All delayed claims categorised as acceptable by the RPs shall be placed before the Adjudicating Authority within one week of receipt of such claims – for condonation of delay and adjudication – and before the CoC only for its recommendation regarding their treatment in the resolution plan,” the paper said.
To prevent conflicts of interest and potential promoter influence, particularly in cases where financial creditors are absent or all financial creditors are related parties, the discussion paper has proposed that related-party operational creditors (RPOCs) be excluded from participation in the CoC, even if they fall within the list of the 18 largest operational creditors.
“The proposed amendment seeks to ensure that only unrelated operational creditors participate in the decision-making process in cases where the CoC is constituted exclusively of operational creditors, thereby preserving independence, neutrality, and creditor primacy under the IBC,” the paper noted.
Experts said that this proposed amendment might not materially affect the overall composition of the CoC in most cases, but it will ensure that smaller, unrelated operational creditors receive appropriate representation, and the CoC structure remains free from undue influence arising from related-party debt arrangements.
“Overall, the proposed amendments aim to increase transparency, accountability, and procedural clarity within the insolvency framework. By formalising deliberations, strengthening financial oversight, and safeguarding the integrity of the CoC’s composition, the discussion paper moves towards addressing several practical challenges that have surfaced at the implementation stage,” said Daizy Chawla, senior partner at S&A Law Offices.