The enactment of the Insolvency and Bankruptcy Code (IBC) has created a paradigm shift in the regulatory framework and processes governing corporate insolvency. The IBC has almost completed two years of enactment, and has seen multiple amendments through ordinances.
With the objective to bring more clarity in the process of resolution, the Insolvency and Bankruptcy Board of India (IBBI) recently came out with a third amendment to the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process of Corporate Persons) Regulations, 2016. The amended regulation provides model time-lines for completion of corporate insolvency proceedings. The regulations prescribe milestones that should be achieved by insolvency professionals (IPs) in specified time-lines so that complete proceedings are concluded within a timespan of 180 days.
But the announcements are not in symmetry. The regulation provides it is effective from the date of its publication in the official gazette and will apply to corporate insolvency resolution processes (CIRP) commencing on or after the said date. The enforcement date of amended regulation is July 3, 2018. So, its applicability is restricted to CIRP commencing on or after July 3, 2018. This invalidates immediate applicability of provisions amended by the IBC Ordinance, 2018.
The ordinance doesn’t make distinction between a pending CIRP or CIRP that commences on or after the date of enforcement of the ordinance. So, any CIRP commencing on or after June 6, 2018, would require compliance of amended regulations. It is unclear how insolvency proceedings that commenced on or before July 2, 2018, would be handled as the amended regulations are applicable from July 3.
A provision has been introduced that allows creditors to withdraw insolvency applications. The regulation conflicts with the ordinance as it doesn’t restrict the withdrawal of only those applications that are filed after the date of ordinance. Also, the amended regulations do not explain the grounds on which the NCLT may refuse withdrawal. We need to wait for judgments to understand the NCLT’s stand on this.
The amended regulations provide that an IRP can apply for withdrawal of application on behalf of creditors, after obtaining the consent to that effect in creditors’ committee by a 90% voting share. Such an application should be made before the issue of invitation of expression of interest. The IBC does not provide any time-limit during which an application for withdrawal should be made. Conversely, amended regulations prescribe time-limits for such withdrawal—this is not in sync with the scheme of the IBC.
Amended norms require that application for withdrawal shall be accompanied by a bank guarantee towards the estimated cost incurred by a resolution professional till the date of application. It is also unclear as to who will provide a bank guarantee—whether creditor or corporate debtor. This added requirement was not envisioned under the IBC.
Under amended norms, the IRP is required to identify three IPs to act as authorised representatives for financial creditors. A creditor in a class must indicate his choice of IP from amongst three alternatives while submitting claim. The IRP is then required to select the IP who is the choice of the highest number of financial creditors in the class to act as the authorised representative of that class. IRPs may find it difficult to ascertain classes of creditor within three days of their appointment, as stipulated in the regulations. Practically, IRPs should provide such rationale in order to assist the financial creditors in making their choice.
The amended regulations are distinctive examples of inconsistency between the IBC and regulations. The strict time-lines given under model time-lines to resolution professionals are already giving them nightmares. It’ll adversely affect the chances of maximum recoveries at hand of stakeholders. Moreover, these anomalies will slow down the resolution process due to procedural issues and, thus, it is suggested the IBBI remove these anomalies at the earliest.
-Ansh Bhargava & Rachit Sharma. Bhargava is Director and Sharma is DGM, Taxmann
