IBBI amends regulation to boost value of stressed cos undergoing insolvency

In a move that will provide better market-linked solutions for stressed companies, watchdog IBBI has amended its regulations to allow sale of one or more assets of an entity undergoing insolvency resolution process, besides other changes.

Also, the Committee of Creditors (CoC) can now examine whether a compromise or an arrangement can be explored for a corporate debtor during the liquidation period.

The Insolvency and Bankruptcy Board of India (IBBI) has amended the regulations with the "objective to maximise value in resolution" and they came into effect from September 16.

As many as 1,703 Corporate Insolvency Resolution Processes (CIRPs) ended up in liquidation till the end of June this year.

The regulator has permitted a resolution professional and the CoC to look for sale of one or more assets of the corporate debtor concerned in cases where there are no resolution plans for the whole business.

The Insolvency and Bankruptcy Code (IBC) provides for a market-linked and time-bound resolution of stressed assets.

The amended regulations will also enable a "resolution plan to include sale of one or more assets of CD (Corporate Debtor) to one or more successful resolution applicants submitting resolution plans for such assets and providing for appropriate treatment of the remaining assets."

With the amendments to IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, marketing of assets of a corporate debtor can be done that will help in wider dissemination of information to a wider and targeted audience of potential resolution applicants.

"The amendment also enables a longer time for the asset in the market...," IBBI said.

Gaurav Gupte, Partner, Cyril Amarchand Mangaldas, said the amendments will provide an impetus to better market-led solutions for insolvency resolution.

"The amendments will ensure that better quality information about the insolvent company and its assets is available to the market, including prospective resolution applicants, in a timely manner," he added.

According to him, a resolution professional will have to actively actively seek claims from known (based on the books of accounts) creditors of the company concerned, a move that will help in making available a clearer picture about the debt.

"Details of any applications filed for avoidance of transactions will be made available to resolution applicants before submission of resolutions plans and can be addressed by the applicants in their plans.

"Thirdly, the information memorandum is required to contain material information which will help in assessing its position as a going concern, and not only information about its assets, thereby addressing a critical need of the market," he added.

As per IBBI's newsletter for the April-June period, as many as 1,703 Corporate Insolvency Resolution Processes (CIRPs) ended up in liquidation orders till the end of June this year.

These processes took an average of 428 days for conclusion.

These cases had an aggregate claim of Rs 8.19 lakh crore but their assets, on the ground, were valued only at Rs 0.59 lakh crore.

"Till June, 2022, 374 CDs have been completely liquidated... These 374 CDs together had outstanding claims of Rs 71,766.03 crore, but the assets valued at Rs 3,046.17 crore. Rs 2,936.30 crore were realised through liquidation of these companies," the newsletter said.