Amendment in the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016

  • On August 07, 2020, Insolvency and Bankruptcy Board of India (IBBI) notified the IBBI (Insolvency Resolution Process for Corporate Persons) (Fourth Amendment) Regulations, 2020 and consequently, amended the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.
    • As per the regulations, Interim Resolution Professional has to offer a choice of three Insolvency Professionals in the public announcement out of which the creditors in a class have to choose one of them to act as their Authorized Representative. The amendment requires that all three Insolvency Professionals must be from the State or Union Territory, which has highest number of creditors in the class.
    • Prior to this amendment, the Authorized Representative of creditors in a class was required to take voting instructions from such creditors at two stages i.e. before the meeting and after circulation of the minutes of the meeting. The amendment now provides that Authorized Representative has to seek the instructions only after circulation of minutes of meeting. However, it has been clarified that Authorized Representative will have circulate the agenda, and may seek preliminary views of creditors in the class before the meeting, to enable him to effectively participate in the meeting.
    • After the evaluation of all complaint resolution plans as per the evaluation matrix by the committee of creditors, committee has to now vote on all such resolution plans simultaneously.
  • The changes brought about by way of the Amendment would help in filling the procedural lacunae which exist in Corporate Insolvency Resolution Process (CIRP) and would make it more efficient. However, one amendment which needs to be highlighted is the requirement of all compliant resolution plans being voted upon simultaneously by the committee of creditors. This, in our opinion, may end up blurring the concept of an H1 or H2 bidder. Further, it rarely happens that a plan is finalized without multiple rounds of negotiations between Resolution Applicant and Committee of Creditors. The simultaneous consideration of plans would make this process extremely difficult. This may also not result in value maximization. However, its true effect can only be seen with time.

Notification No. RBI/2020-21/17 DOR. No. BP.BC/4/21.04.048/2020-21 dated August 06, 2020 issued by Reserve Bank of India

  • Vide Notification No. RBI/2018-19/100 dated January 01, 2019, it was decided to permit a one-time restructuring of existing loans to MSMEs classified as 'standard' without a downgrade in the asset classification subject to the conditions mentioned therein. Subsequently, this was extended on February 11, 2020 by way of Notification No. RBI/2019-20/160.
  • Now, in view of the Covid-19 pandemic and the continued need to support the viable MSME entities, vide the said Notification dated August 06, 2020, RBI has decided to further extend the scheme.
  • The salient features of the Notification dated August 06, 2020 are as under:
    • MSME loan accounts classified as 'standard' can be restructured without downgrading the asset classification, provided that:
      • The aggregate exposure does not exceed INR 25 Crore as on March 01, 2020
      • The MSME's account was 'standard' as on March 01, 2020
      • Restructuring is implemented by March 31, 2021
      • The borrowing entity is GST registered on the date of implementation of the restructuring (not applicable to MSMEs exempted from GST registration)
    • Further, accounts that have slipped into NPA category between March 02, 2020 and date of implementation may be upgraded as 'standard asset' on date of implementation of restructuring plan.
    • It is also pertinent to note that RBI has directed banks to maintain an additional provision of 5%, over and above provision already held by them for accounts restructured under these guidelines.
  • This notification comes at a time when the economy is fighting the adverse effects of the Covid-19 pandemic and by providing some much needed comfort to the MSMEs, this move by the RBI would be widely appreciated by all stakeholders involved.

Amendment in the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016

  • On August 05, 2020, IBBI notified the IBBI (Liquidation Process) (Third Amendment) Regulations, 2020 and consequently amended the IBBI (Liquidation Process) Regulations, 2016.
  • By way of this amendment, a clarification has been inserted in Regulation 4, which provides that the liquidator is entitled to a fee corresponding to the amount realized by him, when he realizes an amount but does not distribute it. Similarly, liquidator is entitled to a fee corresponding to the amount distributed by him when liquidator distributes an amount which has not been realized by him.
  • This amendment is important as there have been instances wherein an amount realized by one liquidator is distributed by another to the stakeholders. Such situations have led to confusion regarding the fee payable to such liquidators. This clarification ensures that such confusion is avoided.

Amendment in IBBI (Voluntary Liquidation Process) Regulations, 2016

  • On August 05, 2020, IBBI notified IBBI (Voluntary Liquidation Process) (Second Amendment) Regulations, 2020 and consequently amended IBBI (Voluntary Liquidation Process) Regulations, 2017.
  • By way of this amendment, a corporate person is allowed to replace the Insolvency Professional appointed by them as liquidator by appointing another Insolvency Professional as liquidator subject to a resolution passed by members, partners or contributories, as the case may be. The Insolvency Professional is required to intimate the Board within three days of his appointment as liquidator.

Click here to continue reading ...

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.