Public Notice: File No. 30/38/2021-Insolvency; Dated: 23.12.2021

The Ministry of Corporate Affairs (MCA) vide. Public notice File No. 30/38/2021-Insolvency dated: 23.12.2021 has sought public comments on proposed changes to the Corporate Insolvency framework. Based on the issues raised by Insolvency Law Committee, significant changes have been proposed to enable a swift admission process, streamline provisions about avoidable transactions and wrongful trading and norms relating to the period for approval of resolution plans.

 

“As the IBC enters the sixth year of its implementation after a year characterised by pandemic related disruptions, efforts are continued to ensure effective outcomes under the Code,” said MCA. The key changes proposed are discussed hereunder:

 

  1. Financial Creditor to rely on Information Utilities authenticated records to establish default

In order to expedite the admission process and to enable speedily authenticate of financial information, the MCA has proposed that financial creditors as may be required to submit only ‘Information Utilities’ (IU) authenticated records to establish default for the purposes of admission of a Section 7 CIRP application. Consequently, the Adjudicating Authority would only be required to consider IU authenticated records as evidence of default for Section 7 applications filed by such financial creditors as prescribed. This will make the admission process significantly quicker and less cumbersome.

 

  1. Streamlining avoidable transactions and wrongful trading

The Insolvency Law Committee (ILC), earlier in its report recommended amendments to promote cooperation by parties with the resolution professional or liquidator for investigation of avoidable transactions and wrongful trading; allowing creditors to initiate such proceedings; clarifying power of liquidator to file for wrongful trading; etc. In the light of the above, the MCA proposed that the Code may be amended to provide that the resolution plan should mandatorily specify the manner of undertaking proceedings for avoidance of transactions and wrongful trading if such proceedings are to be continued after approval of the plan. The plan may also be required to specify if the resolution professional would pursue such transactions/ trading or if any other person would do so after the approval of the plan. Further, the resolution plan may also be required to provide the manner of distribution of expected recoveries from proceedings related to avoidance of transactions and wrongful trading

The MCA felt that the threshold for the look-back period for avoidable transactions may be altered so that a longer net can be cast to effectively capture pre-filing transactions. It is proposed that the look-back period in Sections 43(4), 46(1) and 50(1) may be amended as follows – (i) the threshold for the look-back period may be changed from the date of commencement of CIRP to the date of filing of the application for initiation of CIRP in respect of the corporate debtor that has been admitted; and (ii) the period between the date of filing and the date of commencement of CIRP may additionally be included in the suspect period for such transactions.

 

  1. Adjudicating Authority(AA) to get 30 days to decide on approval or rejection of Resolution Plan

In line with the views of the Hon’ble Supreme Court, is envisaged that the approval of a resolution plan that has already been approved by the CoC should not be inordinately delayed. Thus, the MCA has proposed that the Code should provide a fixed time period for approval or rejection of a resolution plan by the AA. Consequently, the Code is proposed to be amended to provide the AA with 30 days for approving or rejecting a resolution plan under Section 31. Where the resolution plan is not approved or rejected within this time period, the AA shall record reasons in writing for the same. This timeline shall be subject to the overall time period specified for the CIRP in Section 12 of the Code.

 

  1. Voluntary Liquidation Process without the intervention of Adjudicating Authority

The MCA felt that since corporate persons operate in a dynamic market economy, the viability of its business may evolve after the initiation of a voluntary liquidation process. Thus, the law should provide certainty on the manner of closing a voluntary liquidation process prior to dissolution. Given that the process is voluntary, and the corporate person is solvent, the intervention of the AA may not be warranted. Accordingly, it has been proposed that the closure of the process may thus be carried out by the corporate person subject to the same requirements as for initiation of the process, i.e., by way of a special resolution or members’ resolution and approval of creditors representing two-thirds in value of the debt where the corporate person owes a debt to any person. If such approvals are made, the liquidator may be required to make a public announcement of the closure of the process and intimate concerned authorities such as the IBBI and the registrar.

  1. Government to prescribe a detailed framework for contribution to and utilisation of the IBC Fund.

It was felt that the current design of the IBC Fund does not incentivise contributions to it and provides very limited ways of utilising the amounts contributed. Firstly, contribution to the Fund is voluntary and may be made by the Central Government in the form of grants and by any person who voluntarily wants to make such contribution. Receiving contributions voluntarily may be difficult in practice and certain incentives or mandates may be required to enable regular contributions. Secondly, the purposes for which the IBC Fund will be utilised are limited. Section 224(3) only allows persons who have contributed to the fund to withdraw it, to the extent of their contribution. This limits the possible utilisation of the IBC Fun. Consequently, the MCA has proposed that suitable amendments may be made to Section 224 to allow the Central Government to prescribe a detailed framework for contribution to and utilisation of the IBC Fund.