The playing field has been levelled for competing bidders in a corporate insolvency resolution process (CIRP).

Insolvency regulator IBBI has introduced a significant change in the process of approval of resolution plans under a CIRP. With the latest change, the Committee of Creditors (CoC) would be required to put to vote all compliant resolution plans simultaneously.

The resolution plan, which receives the highest vote, but not less than 66 per cent of voting share, would be considered as approved, IBBI has said.

Prior to the latest change, only plans which scored highest marks as per the evaluation matrix were put to voting. Now, all compliant resolution plans will have to be put to voting and the plan getting 66 per cent vote will be approved. The Insolvency and Bankruptcy Board of India (IBBI) has also provided a tie breaker formula to decide when voting outcomes match.

More transparency

The latest change will provide more transparency and result in more accountability in the CIRP process, said Sumit Batra, Partner at India Law Alliance, a law firm. The aim behind the CIRP is to select the best possible plan in the interest of all the stakeholders and this amendment would help in selecting the most appropriate plan which is beneficial to all the stakeholders, he said.

Veena Sivaramakrishnan, Partner, Shardul Amarchand Mangaldas & Co, a law firm, said that tie-breaker formula could soon be the most important factor in a resolution plan getting selected. Like liquidation value, the treatment of this formula would also be the subject of significant scrutiny, she added.

“A detailed process of parallel voting ought to meet the intended result of value maximisation for the creditors and stakeholders,” she added.

Rajiv Chandak, Partner, Deloitte India, said that all compliant plans will now be put for vote and lenders will have an option to vote for multiple plans. This is an outcome of the recent NCLAT judgement to allow voting on two plans simultaneously, he said.

Home buyers

In another significant change, the IBBI said that in the case of appointment of an Authorised Representative (AR) by an Adjudicating Authority to represent financial creditors in a class (like allottees in a real estate project), the three Insolvency Professionals offered by the interim resolution professional must be from the State or Union Territory which has the highest number of creditors in the class as per the records of the corporate debtor.

This will facilitate ease of coordination and communication between the AR and the creditors in the class he represents, IBBI has said.

“The amendment provides the creditors in a class with better right of representation as the AR being from the same location as the homebuyers will help in being in touch with such buyers and understand the issues associated with the project. This also brings more clarity to the scope of the role of an AR and participation in CoC meetings,” said Bikash Jhawar, Partner, L&L Partners.

Sushmita Gandhi, Partner, IndusLaw, said that the amendment regarding appointment of AR from the same State or Union Territory, as majority of the class of creditors, is a step forward in harmonising the Code in line with interest of the class of creditors.