Committee of Creditors to come within IBBI’s regulatory fold

The Committee of Creditors — the most important decision making body of the IBC regulatory framework — will now come within IBBI’s regulatory fold with the insolvency regulator amending the corporate insolvency regulations to specify that “guidelines” will be issued so as to require the committee and its members to function within its ambit.

The Insolvency and Bankruptcy Board of India (IBBI) has also brought in stipulations to ensure that not more than one revision or modification can be done regarding invitation of expression of interest, invitation of resolution plans, and submission of resolution plans.

Delayed resolutions

The move to frame guidelines — which will have the force of law and will be mandatory on CoCs — comes in the wake of rising concerns regarding the manner in which CoCs have been seen to act in resolution proceedings, sometimes deliberately delaying the process or hindering effective resolution.

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The Standing Committee on Finance had also, in its report, made a case for the introduction of a code of conduct for the Committee of Creditors.

Ashish Chhawchharia, Partner and National Head – Restructuring Advisory at Grant Thornton Bharat, said that these changes in CIRP (corporate insolvency resolution process) regulations will certainly help hasten the resolution process by restricting unsolicited or delayed bids. Also, this will improve value realisation by limiting iterations and introducing a price discovery mechanism. However, a ‘Swiss challenge’ in resolution plan may not be easy to design, he said.

Regulatory fold

Charanya Lakshmikumaran, Partner, Lakshmikumaran & Sridharan Attorneys, said, “One of the primary features of the amendment is to require the Committee of Creditors to act in accordance with guidelines to be formulated by the IBBI. This will have a positive impact on resolutions in general by ensuring that the manner of functioning of CoCs is now also regulated.”

The amendments also allow for the expression of interest and the resolution plan to be modified once, after submission, thereby allowing a little room for flexibility, she said.

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Sushmita Gandhi, Partner, IndusLaw, said that the legislative intent clearly seems to be to bind CoC within the regulatory fold, just like all other stakeholders in the CIRP.

“But more importantly, the changes to the resolution plan regime and bringing in a challenge mechanism (the discussion paper on this amendment was to bring in a Swiss challenge method which did not find a specific mention in the final amendment) shows an attempt to bring the enactment a step closer to commercial reality and it’s intention of resolution and value maximisation”, she added.

The cap of a single modification is undoubtedly a good step to keep the mechanism time-bound. But whether that will cause any disinterest in corporate rescuers is something that one will have to closely observe in the times to come, she said.

Streamline process

Rajeev Vidhani, Partner, Khaitan & Co, said that the purpose of these amendments seems to be to streamline the resolution plan approval process and to introduce more certainty and objectivity to the procedure.

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The regulations restricts the modifications which can be made to the invitation for an expression of interest, the process document/ request for resolution plan as well as the resolution plan submitted by the resolution applicant, while stipulating restrictions on considerations by the CoC of plans which are received outside the timelines or from participants outside the list of qualified applicants, he said.

This will help make each resolution process more reliable from its inception, and possibly reduce the time spent in defending challenges to the process adopted for approved plans. This also complements the Supreme Court’s recent directive on making the 330 days process mandatory, he added.

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