The Insolvency and Bankruptcy Board of India (IBBI) recently published a discussion paper aimed at reducing delays and improving the resolution value under the corporate insolvency resolution process (CIRP) conducted as per the provisions of the Insolvency and Bankruptcy Code, 2016 (IBC).
The IBBI pointed out that currently the timelines under the IBC are seemingly linear, which creates a false impression that activities have to proceed sequentially.
However, from experience and on the basis of a finer analysis, it is understood that the timeline is not linear. Rather, a group of activities under the CIRP can be performed parallelly and grouped together — for instance, claim-related activities, assets-related activities, and activities related to the identification of prospective resolution applicants.
As far as timelines are concerned, the IBBI has proposed several changes. First, at the ‘invitation of expression of interest’ stage, it was opined that only basic information about the corporate debtor was sufficient. Thus, instead of waiting for the detailed information memorandum, the process of inviting prospective resolution applicants can begin much earlier. The IBBI observed that this would provide enough time to gather a sufficient number of resolution applicants, thereby increasing the likelihood of successful resolution.
Secondly, for the preparation of the information memorandum, a critical document based on which the resolution applicants propose their plans, the IBBI opined that the timeline was insufficient. From experience, it was observed that resolution professionals were often unable to prepare and submit the information memorandum to the committee of creditors on time.
Even if submitted on time, the level of accuracy and completion was unsatisfactory. Hence, it proposed increasing the timeline for effective preparation of the information memorandum.
Lastly, for filing the avoidance application, it was observed that this coincided with the timeline for submission of a resolution plan. The IBBI opined that the amount recovered from the avoidance transactions would aid in enhancing the value of the assets of the corporate debtor. Thus, it proposed that the timeline for filing an avoidance application be reduced to allow the resolution applicant to consider it while submitting a plan.
The IBBI’s discussion paper also touched upon aspects such as (i) marketing of the assets of the corporate debtor, (ii) efforts for resolving the functional parts of the corporate debtor, (iii) factors for deciding on early liquidation, (iv) exploring compromise arrangement after CoC approves liquidation, (v) details to be captured in the information memorandum, and (vi) minimum entitlement of dissenting financial creditors.
IBC as a code has evolved significantly over a short span of time based on the experience of stakeholders. It is one of the few laws where regular need-based amendments have been introduced. The restructuring of timelines is much-needed and in line with the IBC’s objective to not only enable resolution professionals to function more efficiently but also aid in value maximisation and improve the insolvency resolution process. The proposed amendments are expected to aid the timely and successful completion of CIRP, to help put ailing corporate entities back on their feet.
The writers are advocates at Phoenix Legal, a law firm