The Corporate Affairs Ministry (MCA) has now empowered interim resolution professionals (IRPs), resolution professionals (RPs) and liquidators to file necessary e-forms for creation, alteration or satisfaction of charges during the corporate insolvency resolution process (CIRP).
This move — which has been effected through amendment to the Companies (Registration of Charges) Rules — has now removed ambiguity on the power of the IRP/RP/liquidators in filing relevant e-forms for creation or modification of charges, insolvency law experts said.
Previously, this — creation and alteration of charges — could be done at the instance of the former management of the corporate debtor only. Once corporate insolvency has been initiated,the IRP/RP/liquidator comes into the shoes of the board of directors. The board of directors lose powers to make any filings on behalf of the company.
Kumar Saurabh Singh, Partner, Khaitan & Co, said the latest MCA move now allows resolution professionals and liquidators under IBC, to sign charge forms on behalf of the corporate debtors.
“During the stage of CIRP of the corporate debtor, it is less likely that the resolution professional may be required to file charge forms except for raising interim finance through security creation. However, the Amendment Rules will surely enhance the charge filing compliances by the liquidator during the liquidation process under IBC, where upon sale of assets filings for satisfaction of charge becomes necessary,” Singh said.
Forms modified
The Amendment Rules have modified forms in relation to filings by the companies in relation to creation of charges Form No. CHG-1, CHG-4, CHG-8 and CHG-9. Through, modification of these charge forms especially CHG-1, the MCA has sought to enhance the disclosure requirements related to the description of the security created over the asset, details of the charge holders, description of the charged asset and title documents, he said.
Dinesh Pednekar, Partner, Economic Laws Practice, said the amendment leaves no ambiguity on the powers of the IRP/RP/Liquidator in filing the relevant e-forms for creation, alteration or satisfaction of the charge.
Generally for recording a creation, modification or satisfaction of a charge, the Directors, Company Secretary or Authorised Representative of the Company were authorised to file the relevant Form CHG with the MCA. However, post a Company being admitted into Insolvency/Liquidation, the board of directors of the company were superseded with management and control, vesting with the IRP/RP appointed by the NCLT. This being so, the amendment enables IRP /RP/Liquidators, as the case may be, to file the necessary e-forms inter alia for creation/alteration/satisfaction of Charge, he said.
Interim finance
The Insolvency and Bankruptcy Code (IBC) provides for raising of interim finance during the insolvency resolution process with the approval of committee of creditors (CoC). Interim finance has been included in the ‘insolvency resolution process costs’ which is given priority in payment, over other debts of the CD, both in resolution plan and during settlement of debts in liquidation.
The Code safeguards the interests of the creditors by providing that while raising interim finance, no security interest shall be created over any encumbered property of the CD, without the prior consent of the creditors, whose debt is secured over such encumbered property.
Insolvency regulator Ravi Mital had recently said that as the Code matures, it is expected that there will be an increased awareness among the lenders about the benefits of raising interim finance during CIRP as a measure to attempt the resolution of the CD and saving it from going into liquidation.