The Insolvency and Bankruptcy Board of India (IBBI) has, vide notification dated 7 August 2020 (Notification), amended the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (CIRP Regulations) to, inter alia, make it mandatory for the committee of creditors (CoC) to vote on all the resolution plans simultaneously.
As per the extant provisions of the Insolvency and Bankruptcy Code, 2016 (Insolvency Code) and the CIRP Regulations (as it stood prior to the Notification), the resolution professional is required to examine each resolution plan to ensure that such resolution plan is in conformity of the provisions of section 30(2) of the Insolvency Code. The resolution professional would present to the CoC for its approval such resolution plans which confirm with the conditions set out in section 30(2) of the Insolvency Code. Upon receipt of the resolution plans, the CoC would then evaluate each resolution plan as per the evaluation matrix to identify the best resolution plan and vote thereon.
Thus, as per the process set out in the CIRP Regulations (prior to the amendments), if a resolution plan, which is otherwise compliant with the provisions of the Insolvency Code and the evaluation matrix, is not voted in favour of by the CoC based on their commercial wisdom, then the CoC is required to consider the next best resolution plan which, sometimes, resulted into a delay in the resolution process. Therefore, the IBBI had, on 14 February 2020, issued a discussion paper and sought public comments on its proposal to allow simultaneous voting on all resolution plans.
As per the Notification:
- After each compliant resolution plan has been evaluated as per the evaluation matrix, the CoC shall vote on all such compliant resolution plans simultaneously.
- In case the CoC has received only one resolution plan and the same is put to vote, such resolution plan shall be considered as approved if it receives the requisite voting share of 66%.
- In case two or more resolution plans are put to vote simultaneously, then the resolution plan, which receives the highest votes, but not less than requisite votes (i.e. 66%), shall be considered as approved.
- If none of the resolution plans receives requisite votes (i.e. 66%), the CoC shall again vote on the resolution plan that received the highest votes, subject to the timelines set out under the Insolvency Code, 2016.
- In case two or more resolution plans receive equal votes, but not less than the requisite votes (i.e. 66%), the CoC shall approve any one of them as per the pre-determined tie-breaker formula.
In addition to the above, the Notification has also amended the CIRP Regulations to:
- provide for appointment of authorised representative
(AR) (in case a corporate debtor has a class of
financial creditors) who must be from the state or union territory,
which has the highest number of financial creditors in class as per
the records of the corporate debtor. In case such state or union
territory does not have adequate number of insolvency professionals
(IPs), the IPs having addresses in a nearby state
or union territory, as the case may be, shall be considered for
appointment as AR.
As per the extant provisions of the Insolvency Code and the CIRP Regulations, in case a corporate debtor has a class of financial creditors (such as home buyers), the tribunal is required to appoint an AR who will participate and vote, on behalf of such class of financial creditors, in the meetings of the CoC. For this purpose, the interim resolution professional is required to offer a choice of 3 IPs to the financial creditors in class. The financial creditors of such class have to choose one of such 3 IPs to represent them in the meetings of the CoC.
- do away the two stage voting process for the financial
creditors in a class. As per the extant provisions of the
Insolvency Code and the CIRP Regulations (as it stood prior to the
Notification), the AR is required to circulate: (i) the agenda of
the meetings of the CoC to the financial creditors (he represents)
for voting instructions; and (ii) the minutes of meetings of the
CoC to the financial creditors (he represents) for voting
Therefore, a financial creditor in a class can give voting instructions to the AR at two stages, namely, (i) after circulation of agenda of meeting of CoC, and (ii) after circulation of minutes of meetings of the CoC.
As per the amendments notified by the Notification, the AR shall now seek voting instructions from the financial creditors (he represents) only after circulation of minutes of meeting of the CoC and vote accordingly. The AR shall, however, circulate the agenda of the meetings of the CoC to such financial creditors as per the requirements of the Insolvency Code and the CIRP Regulations. While the AR may seek preliminary views of the creditors in the class before the meeting of the CoC so as to enable him to effectively participate in the meeting, such preliminary views shall not be considered as voting instructions by such creditors.
While prior to the Notification, there was no express provision in Insolvency Code and/or the CIRP Regulations with respect to the simultaneous voting on all resolution plans, the CoC of Jaypee Infratech Limited (JIL) had decided to vote simultaneously on all the resolution plans to identify the best resolution plan for insolvency resolution of JIL and maximisation of value. The Notification has now made it mandatory for the CoC to vote simultaneously on all resolution plans in all cases. As a result, the financial creditors can vote for the resolution plan which most appeals to them in their commercial wisdom. However, in case of equality of votes, the pre-determined tie-breaker formula would play a crucial role.
Further, the amendments with respect to the appointment of the AR are likely to facilitate and improve coordination and communication between the AR and the financial creditors in the class he represents.
Additionally, prior to the Notification, the CIRP Regulations enabled the AR to cast a vote during the CoC meetings basis the voting instructions received from the financial creditors in the class after receipt of the agenda item by them, in the first stage. Later, after the meeting of CoC, based on the minutes of meeting of the CoC circulated, the AR would get another opportunity to cast the votes of the remaining creditors who may issue voting instructions after receipt of minutes of meeting. The amendments would now enable all the financial creditors in a class to take an informed decision basis the minutes of the CoC meetings circulated by the AR.
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