On November 1, 2023, the Insolvency and Bankruptcy Board of India (“IBBI”) has published a discussion paper (“Discussion Paper”) on amendments proposed to the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (“CIRP Regulations”). Comments on the proposals mentioned in the Discussion Paper are invited till November 22, 2023.

The Discussion Paper has proposed certain amendments to the CIRP Regulations, which include the following:

1. Approval of committee of creditors (“CoC”) for insolvency resolution process cost
   To enhance monitoring by the CoC during the corporate insolvency resolution process (“CIRP”), regulation 31B of the CIRP Regulations is proposed to be inserted which states that the resolution professional (“RP”) should seek explicit approval from the CoC for all the CIRP costs incurred, including the costs incurred in running the business of the corporate debtor.

2. Monthly CoC meetings
   With the aim to ensure consistent monitoring, it is proposed to amend regulation 18(1) of the CIRP Regulations to mandate the conducting of a CoC meeting once every 30 (thirty) days.

3. Discussion of valuation methodology and report with CoC
   In order to reduce disputes in relation to the valuation methodology employed, regulation 35(1)(a) of the CIRP Regulations is proposed to be amended to include the requirement of an explanation to be provided by the registered valuer to the CoC on the valuation methodology before the computation of estimates of the fair value and liquidation value.

4. Disclosure of fair value in the Information Memorandum
   To encourage more viable and better valued resolution plans, regulation 36(2) of the CIRP Regulations is proposed to be amended to provide that the information memorandum to be shared with the prospective resolution applicants shall include the fair value of the corporate debtor.

5. Continuation of process activities pending disposal of extension application by the Adjudicating Authority (“AA”)
   A clarification is proposed to be inserted under regulation 40 of the CIRP Regulations to state that the RP should continue to discharge its responsibilities under CIRP for the period during the pendency of the application before the AA seeking extension of the CIRP.

6. Clarity in minimum entitlement of dissenting financial creditors
   Currently, section 30(2)(b) of the Insolvency and Bankruptcy Code, 2016 (“IBC”) provides that dissenting financial creditors shall be paid atleast the ‘the amount to be paid to such creditors in accordance with sub-section (1) of section 53 in the event of a liquidation of the corporate debtor’. Further, regulation 38(1) of the CIRP Regulations provides that the amount payable under a resolution plan to dissenting financial creditors shall be paid in priority over the assenting financial creditors.
   
   The Discussion Paper notes that the realisable amount in the event of liquidation when the resolution plan has been approved is not defined under the IBC and that this value is an estimated figure since the prevailing scenario is one of resolution rather than liquidation.
   
   Accordingly, regulation 38(1)(b) of the CIRP Regulations is proposed to be amended to provide that dissenting financial creditors shall be paid the 'amount due in the event of liquidation’ in priority over assenting financial creditors. The phrase 'amount due in the event of liquidation’ is proposed to be defined as ‘lower of the (i) amount that would have been paid to such creditors, if the amount to be distributed under the resolution plan had been distributed in accordance with the order of priority in sub-section (1) of section 53; or (ii) the liquidation value as defined under these regulations been distributed in accordance with the order of priority in sub-section (1) of section 53’.
   
   Further, a clarification is proposed to be inserted stating that at no stage of implementation of resolution plan assenting financial creditors shall be paid higher percentage of their dues than the dissenting financial creditors.

7. Mandatory contents of resolution plan
   For the effective implementation of the resolution plan and to mitigate the impact of disputes/ litigation in respect of distribution of amounts under the resolution plan, it has been proposed to amend the mandatory contents of a resolution plan under regulation 38 of the CIRP Regulations to provide that a resolution plan shall be prepared in 2 (two) parts – (i) Part A encompassing the inflow (payment under the resolution plan (total value of the resolution plan), payment of insolvency resolution process cost, payment schedule, feasibility and viability of the resolution plan, etc.); and (b) Part B dealing with distribution to the various stakeholders. Further, the CoC will be required to recommend whether a resolution plan will have provisions for separate approval of Part A and Part B by the AA. It has also been proposed that any disputed amount can be deposited in an escrow account till such dispute is resolved or attains finality.

Please find a copy of the Discussion Paper, here.

This update has been contributed by Aastha (Partner) and Apoorva Soni (Associate).

Argus Knowledge Centre is now on WhatsApp! Send us a message on +91 8433523504 to receive updates from our Knowledge Centre.