Insolvency & Bankruptcy Code – Amendment to Regulations 2020

5th August 2020

IBBI (Voluntary Liquidation Process) Second Amendment Regulations 2020

Under Chapter V, Part II of the IBC Code, a Corporate person can voluntarily initiate liquidation process if it has no debts or can pay off its debts from the sale of its assets. For this purpose, the Corporate person shall appoint an insolvency professional as Liquidator subject to satisfying certain pre-conditions as contained in Regulation 6.

However, it was observed that there were certain instances when the Corporate person sought to replace or change the liquidator. To address such issues, the following amendments were introduced and effective 5th August 2020:

Chapter III, Regulation 5 is amended to enable Corporate person to replace an existing insolvency professional as Liquidator with another Liquidator by passing a resolution under Section 59 (3) (c) or Regulation 3 (1) (c). The amendment further states that such appointment of the (replaced) Liquidator shall be intimated to the Board within 3 days from the date of such appointment.

IBBI (Voluntary Liquidation Process) Third Amendment Regulations 2020

With respect to an insolvency professional who has been appointed as a liquidator, the Committee of Creditors (CoC) decides on the fee to be paid to the liquidator. In cases, where fee has not been fixed, it is calculated as a percentage of the amount realized and distributed through the liquidation process.

However, the Corporate person faces challenges in situations when the liquidator is replaced or when the liquidation of assets is undertaken by one liquidator and the distribution of assets realized is undertaken by another liquidator.

To avoid ambiguity in payment to liquidator, the IBBI amended Regulation 4 (2)(b) of the Voluntary liquidation process Regulations 2020 to states that where a liquidator realizes the amount but does not distribute the same, he shall be entitled to fee corresponding to the amount realized by him. Where a liquidator distributes any amount which is not realized by him, he shall be entitled to fee corresponding to the amount distributed by him.

This amendment has been put in place in situations where there are multiple liquidators. Each of the liquidator shall be paid fee only to the extent of or proportion of work undertaken by them.

 

7th August 2020

 IBBI (Insolvency Resolution Process for Corporate Persons) Fourth amendment Regulations 2020

 Chapter V, Regulation 16A of the Code and Regulations deal with appointment of an Authorized representative (AR) by way of recommendation by the interim resolution professional or resolution professional to the Adjudicating Authority. Such AR shall represent the financial creditors of a class of creditors.

The interim resolution professional or resolution professional shall provide a list of 3 insolvency professionals. The creditors of a class shall choose one of them to act their authorized representative. The amendment dated 7th August 2020 provides that the 3 insolvency professionals must be from the State or Union Territory with the highest number of creditors of a class. The objective of such amendment is to promote co-ordination and ease of carrying on liquidation process.

Regulation 16A (9) has been amended to provide that the Authorized representative shall circulate the agenda to the class of creditors and then seek preliminary views of the creditors. However, the Authorized representative can seek voting instructions only after circulation of minutes of the meeting and vote accordingly. Prior to the amendment, the AR could seek it twice – once before the meeting and once after circulation of minutes. Post the 7th August 2020 amendment, the AR can seek voting instructions only once – after the circulation of minutes of meeting.

Regulation 39(3) has been amended as well. Hitherto, the IBC provided that the Committee of Creditors (CoC) shall evaluate all resolution plane in accordance with an evaluation matrix and accordingly approve it. The latest amendment provides that in addition to identifying the most viable / profitable resolution plan, the Committee of Creditors (CoC) shall put it to vote. If there is:

  • Only one resolution plan, the same can be voted favourably.
  • More than one resolution plan, then the CoC shall vote on such resolution plans. The one which receives the highest votes subject to a minimum of 66% of voting shares shall be considered as final and approved. If the
  • If two plans receive the same number of votes, then the tie – breaker formula shall be applied, and one resolution plan shall be finalized and approved.

Further Regulation 77(4) has been amended to file Forms with delay filing fee after due date. Hitherto, the Form were to be filed with delayed filing fee if filed after 1st April 2020. It has now been amended to after 1st October 2020.

The need of the hour

The Insolvency and Bankruptcy Board of India (IBBI) pro actively amended the Code in suspending fresh admission of insolvency cases in view of the Covid19 pandemic. The Insolvency and Bankruptcy Board of India continues to be proactive in amending and re-aligning the provisions of the Code, Rules and Regulations to address real time challenges encountered by various stakeholders in effective insolvency resolution process. This is very much the need of the hour.

 

 

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