As inordinate delays in the resolution of stressed assets hits recovery, the Insolvency Law Committee has suggested that the Insolvency and Bankruptcy Code (IBC) be amended to stipulate that the National Company Law Tribunal (NCLT) should accept or reject a resolution plan in just 30 days. If the adjudicating authority (AA) fails to do so, it has to “record reasons in writing for the same”.
The committee, headed by corporate affairs secretary Rajesh Verma, has recommended a slew of changes to the IBC – including on avoidable transactions, change in the threshold date for look-back period and curbing the submission of unsolicited resolution plans or frequent revisions in such plans – to make the law more robust and help cut delay with an aim to prevent further erosion of value of toxic assets.
Taking cognisance of the delays in the disposal of resolutions plans submitted to the NCLT, the committee said such delays are often caused due to a high number of objections to the proposed resolution plan, or due to a high degree of pendency of cases. “Nevertheless, delays at the stage of disposal of the resolution plan are value destructive and discourage prospective resolution applicants from submitting plans,” it said, while recommending a 30-day deadline for the adjudicating authority to dispose the resolution plans.
As many as 66% of companies that are undergoing resolution have exceeded the 270-day limit, as per IBBI data. Recovery for financial creditors from the resolution of stressed firms under the IBC crashed to a record quarterly low of 10.2% of their admitted claims in the three months through March. Analysts have mainly blamed the delay in resolution for the value erosion, although other factors, too, served to drag down the recovery.
The committee has recommended that a mechanism for reviewing late submissions of plans and unsolicited revisions to plans be laid down in the regulations. Although there are stage-wise timelines provided in the regulations at present, resolution plans are received by the resolution professionals even after the stipulated deadlines. In some cases, revisions are made to submitted resolution plans in an attempt to outbid other potential resolution applicants.
The committee also suggested that a clarificatory note be issued to stress that proceedings for avoidable transactions and improper trading can continue even after the completion of a corporate insolvency resolution process (CIRP).
Similarly, the threshold date for the look-back period of avoidable transactions should be “altered to cast a wider net for catching such transactions”. So, the threshold date should be changed to the date of the filing of application for the initiation of the CIRP, instead of the date of commencement.
The committee has also suggested that the insolvency regulator IBBI issue guidelines stipulating the standard of conduct for members of the committee of creditors (typically financial creditors). “This may be in the form of guidance that provides a normative framework to members of the CoC about the manner of conducting themselves in processes under the Code,” it said.