The proposal is based on suggestions that the cost of liquidation may be borne by financial creditors upfront and the same may be recovered from sale of assets.
Members of the committee of creditors, specifically secured institutional financial creditors, may soon be required to arrange for liquidation expenses upfront, as per a proposed amendment by the Insolvency and Bankruptcy Board (IBBI) to the Insolvency Resolution Process for Corporate Persons regulations.
“It is, therefore, proposed that the regulations may require the CoC to consider an agenda item, while rejecting a resolution plan or deciding to liquidate the CD, providing for liquidation expenses. It must consider the estimated amount of liquidated costs, the availability of liquid assets to meet liquidation costs, and balance amount required for meeting liquidation costs and require the secured institutional financial creditors to bring in upfront balance amount of liquidation cost, in an escrow account with a scheduled bank, within seven days of the liquidation order,” the paper read on the proposed amendment.
The proposal is based on suggestions that the cost of liquidation may be borne by financial creditors upfront and the same may be recovered from sale of assets. This, however, could prove burdensome for retail individual creditor, the IBBI noted.
The regulator hence proposes requiring secured institutional financial creditors to bring in interim finance to run as a going concern or liquidate the corporate debtor, if there are no liquid assets available to cover these expenses.
The funds brought in by these financial creditors along with interest based on bank rate could then be included to the liquidation cost.
The proposal is part of a discussion paper published by the IBBI last week that calls for public comments until May 30.
Based on suggestions received, the regulator has further proposed an amendment to the regulations to allow withdrawal of an application filed under Sections 7, 9 or 10 of the Insolvency and Bankruptcy Code at any time – (a) before constitution of CoC, (b) after constitution of CoC but before invitation of EoI, or (c) after invitation of EoI in exceptional cases on an application made by the applicant.
Another discussion paper released by the IBBI calls for comments before May 28 on a proposed amendment seeking to cap the upper age limit for insolvency professionals to take on independent assignments at 70 years.
“In terms of Section 196 of the Companies Act, 2013, an individual above the age of 70 years is not ordinarily eligible to be a managing director, whole time director or manager, given the demanding responsibilities of such positions. During the corporate insolvency resolution process (CIRP), an IP replaces the board of directors and manages the affairs of the company as a going concern. The job of an IP is not less demanding than that of a managing director under the Companies Act, 2103. The age limit applicable to a managing director may, therefore, apply to IPs,” the paper read.
The IBBI has proposed that those above 70 years may not be issued certificate of practice (CoP) but they can support younger IPs or work for insolvency professional entities.
Another proposal relates to amendment to the IP Regulations to introduce the very concept of CoP for IPs, a requirement for registered IP which has to be renewed every year from its Insolvency Professional Agencies (IPA) subject to meeting certain requirements.
“These requirements would include: he has paid fees to IPA and the board, he is not in employment, he has filed all required returns and made all required disclosures, he is under the age of 70, he remains a fit and proper person, he has undertaken continuing professional education, he has no disciplinary proceeding pending against him, etc,” the discussion paper read.
Another significant amendment refers to an IP’s association with stakeholders, where the present regulatory framework only addresses conflict of interests arising from past and present relationships of an IP.
The proposal is to amend IP regulations to prohibit an IP and relatives from engaging in any employment with the CD, successful resolution applicant, major creditors (creditors having 10% voting power) and their related parties, for a period of two years from the date of closure of the process concerned, unless the employment is through an open competitive examination.
Another suggested amendment is to prohibit an IP and relatives from providing professional services to the CD, the successful resolution applicant, major creditors (creditors having 10% voting power) and their relatives for one year unless a disclosure is made to the IPA.