If the IBBI finds evidence of criminal irregularities, it will approach the special courts, set up under the provisions of the Companies Act, 2013, to punish the guilty, said the sources.
Amid clamour for a greater scrutiny of the conduct of lenders, the Insolvency and Bankruptcy Board of India (IBBI) is set to oversee complaints against members of the committee of creditors (CoC) if they fail to comply with a proposed code of conduct while resolving toxic assets, sources told FE.
Upon receiving complaints of non-compliance of its code, to be notified soon, the insolvency regulator will probe allegations of wrong-doing against financial creditors who are part of the powerful CoC that decides on key issues like haircut. If the IBBI finds evidence of criminal irregularities, it will approach the special courts, set up under the provisions of the Companies Act, 2013, to punish the guilty, said the sources. The mechanism will ensure the CoC members abide by the rules and the stressed asset resolution process remains transparent.
“Since the IBBI is a general regulator responsible for the conduct of insolvency resolution in the country, complaints against the CoC will be looked into by it, and not sectoral regulators like RBI,” said one of the sources. The need for such a professional code assumed significance after a few cases tested the spirit of the Insolvency and Bankruptcy Code (IBC) in recent months.
For instance, in the case of Siva Industries Holding, the lenders accepted a one-time settlement by its former promoter, who had offered just 6.5% of the total debt, and filed a withdrawal application before the NCLT. In the case of Videocon, the NCLT had highlighted that the lenders were taking an almost 96% haircut and exclaimed that Twin Star Technologies’ offer was very close to the stressed firm’s liquidation value, which was meant to be confidential. The IBBI, which proposed the code of conduct for the CoC in a discussion paper last month, has received stakeholders’ comments.
Prescribing the dos and don’ts for the CoC members, the IBBI has suggested that they maintain integrity and ensure decisions are made without any bias, favour, fear, coercion, undue influence or conflict of interest. They must not misrepresent facts or influence the CoC’s decision to benefit related parties. They have to disclose conflict of interests and they won’t acquire assets of the corporate debtor even indirectly nor will they permit their relatives to do so without disclosing it to stakeholders.
They must try to ensure that timelines, stipulated by the IBC rules and regulations, are adhered to and strive to protect the debtor as a running business or preserve it asset value.
Analysts have said the code will instil much-needed discipline into the members who wield enormous power, make them more accountable and lend transparency to the resolution process under the IBC. Importantly, the CoC will be required to ensure “complete confidentiality of information that they receive or come across as part of the process at all times”. “It shall not share any information with any person who is not authorised to receive such information and without the consent of the relevant parties or as required by law,” the IBBI’s discussion paper has said. They will have to try and protect the stressed firm as a running business and preserve the value of its assets.
Making a case for the code of conduct, the IBBI paper said while other stakeholders —insolvency professionals, valuers and information utilities —are regulated entities, “the CoC functions in an unregulated environment”. “On several occasions questions have been raised in various fora about the action of CoC being detrimental to objectives of the Code,” it added.