LATEST CHANGES IN ‘IBC’ LAWS

[Mr. M. GOVINDARAJAN]

The Insolvency and Bankruptcy Board of India (‘Board’ for short) has brought amendments in some of its regulations as detailed below-

• IBBI (Bankruptcy Process for Personal Guarantors to Corporate Debtors) (Amendment) Regulations, 2024; (came into effect from 31.01.2024)
• IBBI (Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) (Amendment) Regulations, 2024; (came into effect from 31.01.2024)
• IBBI (Insolvency Professionals) (Amendment) Regulations, 2024; (came into effect from 31.01.2024)
• IBBI (Voluntary Liquidation Process) (Amendment) Regulations, 2024; (came into effect from 31.01.2024)
• IBBI (Model Bye Laws and Governing Board of Insolvency Professional Agencies) (Amendment) Regulations, 2024; (came into effect from 31.01.2024)

Amendment to Bankruptcy process

• Regulation 3 of IBBI (Bankruptcy process for Personal Guarantors to Corporate Debtors), 2019 provides the eligibility for becoming a bankruptcy trustee.  The explanation to Regulation 3(1) provides that  a person shall be considered independent of the guarantor, if he-

1. is not an associate of the guarantor;
2.  is not a related party of the corporate debtor; and
3. has not acted or is not acting as interim resolution professional, resolution professional or liquidator in respect of the corporate debtor.

The amendment made some changes in clause (a) and (b) and it omitted clause (c). After amendment the said explanation provides that a person shall be considered independent of the guarantor, if he-

1. is not an associate of the guarantor; and
2. is not a related party of the corporate debtor. 

• Regulation 5(1) provides that a bankruptcy trustee may appoint accountants, registered valuers, advocates or other professionals, as may be necessary, to assist him in the discharge of his duties, obligations and functions for a reasonable remuneration and such remuneration shall form part of the bankruptcy process cost.  The proviso to this section provides that the following persons shall not be appointed under this regulation-

1. a relative of the bankruptcy trustee;
2. a partner or director of the insolvency professional entity of which the bankruptcy trustee is a partner or director
3.  an insolvency professional who has acted or is acting as an interim resolution professional, a resolution professional or a liquidator in respect of the corporate debtor;
4. an associate of the bankrupt;
5.  a related party of the corporate debtor.

The amendment omitted the clause (c) of the proviso to Regulation 5(1).

Amendment to Insolvency process for personal guarantors

• Regulation 4 of IBBI (Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Regulations, 2019 provides the eligibility for the appointment of insolvency professionals under these regulations.  The explanation to Regulation 4(1) provides that a person shall be considered independent of the guarantor, if he-

1. is not an associate of the guarantor;
2. is not a related party of the corporate debtor; and
3. has not acted or is not acting as interim resolution professional, resolution professional or liquidator in respect of the corporate debtor.

The amendment made some changes in clause (a) and (b) and it omitted clause (c). After amendment the said explanation provides that a person shall be considered independent of the guarantor, if he-

1. is not an associate of the guarantor; and
2. is not a related party of the corporate debtor. 

The amendment inserted a new Regulation 17A which deals with the meeting of the creditors.  The Regulation 17A provides that the resolution professional shall place the repayment plan in a meeting of the creditors for its consideration.  Where no repayment plan has been received within such period as stipulated under section 106, the resolution professional shall notify the same in a meeting of creditors.

Amendment to Insolvency Professionals Regulation

• The amendment inserted a new clause 22A in the First Schedule which prescribes Code of Conduct to be observed by the Insolvency Professionals.  This regulation discusses about the resignation of the insolvency professional during the corporation insolvency resolution process.  The said regulation provides that an insolvency professional may resign from the assignment, subject to the recommendation of the committee of creditors in a corporate insolvency resolution process, consultation committee in liquidation process, the debtor or the creditor in the insolvency resolution process of personal guarantor to the corporate debtor, as the case may be, and the approval of the Adjudicating Authority.

In such cases the insolvency professional shall continue to discharge his duties, functions and responsibilities till the approval of resignation by the Adjudicating Authority.

• Clause 23B provides that an insolvency professional shall not engage or appoint any of his relatives or related parties, for or in connection with any work relating to any of his assignment.

The Financial Bill inserted an explanation to this clause which provides that the insolvency professional which is an insolvency professional entity may engage or appoint its partners or directors, as the case may be, for or in connection with any work relating to any of its assignment other than work related to valuation and audit of the debtor.

• Clause 23C provides that an insolvency professional shall not provide any service for or in connection with the assignment which is being undertaken by any of his relatives or related parties.

The amendment inserted a second proviso to this regulation which provides that the insolvency professional which is an insolvency professional entity may provide any service, other than service related to valuation and audit, for or in connection with the assignment which is being undertaken by any of its partners or directors, as the case may be.

Amendment to Voluntary liquidation process

Regulation 3 prescribes the conditions for initiation of voluntary liquidation process.  Regulation 3(1) provides that the declaration of majority of members of LLP/Company shall be verified by an affidavit that-

i. they have made a full inquiry into the affairs of the corporate person and they have formed an opinion that either the corporate person has no debt or that it will be able to pay its debts in full from the proceeds of assets to be sold in the liquidation;

The amendment proposed to omit the words ‘and’ and ‘the liquidation’.

The bill proposed to insert clause (iii) which provides that the corporate person has made sufficient provision to meet the obligations arising on account of pending matters mentioned in sub-clause (iii) of clause (b).

Regulation 3(1) (b) provides that the declaration shall be accompanied with the following documents-

i. audited financial statements and record of business operations of the corporate person for the previous two years or for the period since its incorporation, whichever is later;

ii. a report of the valuation of the assets of the corporate person, if any prepared by a registered valuer;

The amendment inserted clause (iii) to this regulation which provides that the disclosure about pending proceedings or assessments before statutory authorities, and pending litigations, in respect of the corporate person shall be accompanied along with the declaration.

Regulation 37 provides the types of reports to be submitted by the liquidator during the voluntary liquidation process.  The Bill proposed to insert clause (4) to this regulation which provides that the liquidator shall file the Status Report with the Board within seven days of the meeting of contributories.

Regulation 39 provides the procedure for maintenance of Corporate Voluntary Liquidation Account.  The Bill proposed to substitute Regulation 39(7) for a new one.  The newly substituted regulation 37 provides that prior to dissolution of the corporate person, a stakeholder, who claims to be entitled to any amount deposited into the Corporate Voluntary Liquidation Account, may apply to the liquidator in Form-I for withdrawal of the amount.

(7A) On receipt of request under sub-regulation (7), the liquidator after verification of the claim, shall request the Board for release of amount to him for onward distribution.

(7B) The Board on receipt of request under sub-regulation (7A) may release the amount to the liquidator.

(7C) The liquidator shall, after making the distribution to the stakeholder shall intimate the Adjudicating Authority of such distribution.

(7D) After dissolution of the corporate person, a stakeholder, who claims to be entitled to any amount deposited into the Corporate Voluntary Liquidation Account, may apply to the Board in Form-I for an order for withdrawal of the amount.

(7E) If any other person other than the stakeholder claims to be entitled to any amount deposited to the Corporate Voluntary Liquidation Account, he shall submit evidence to satisfy the liquidator or the Board, as the case may be, that he is so entitled.

Amendment to Model Bye laws

Clause 12A of para VI of the Schedule prescribes the procedure for getting authorization for assignment.  Sub-clause (6) provides that an authorization for assignment issued or renewed by the Agency shall be valid for a period of 1 year from the date of its issuance or renewal, as the case may be, or till the date on which the professional member attains the age of 70, whichever is earlier.

The said sub clause was substituted by a new one.  The newly substituted clause (6) provides that an authorization for assignment issued or renewed by the Agency shall be valid for a period of one year from the date of its issuance or renewal, as the case may be.  An authorization for assignment issued or renewed by the Agency shall be valid till 30th of June of the year where the expiry of the period of one year falls from 1st of January to 30th of June, or till 31st of December of the year where the expiry of the period of one year falls from 1st of July to 31st of December.   If the professional member attains the age of seventy years during this period, the authorization for assignment shall be valid till such date.

The above said amendment brings a great relief to the insolvency professionals so that they can apply for both half years to be included in the panel maintained by the IBBI.