Important sections of Bill on pre-packaged insolvency resolution tabled in parliament

The government recently tabled the Insolvency and Bankruptcy Code (Amendment) Bill, 2021, which deals with the Pre-packaged insolvency resolution plan. Here are some of the important sections of the Bill:

Section 54A: Submission of application

An application for initiating pre-packaged insolvency resolution process may be made in respect of a corporate debtor classified as a micro, small or medium enterprise under sub-section (1) of section 7 of the Micro, Small and Medium Enterprises Development Act, 2006.

The corporate debtor shall obtain an approval from its financial creditors, not being its related parties, representing not less than sixty-six per cent. in value of the financial debt due to such creditors, for the filing of an application for initiating pre-packaged insolvency resolution process

Section 54B: Duties of a resolution professional

The insolvency professional, proposed to be appointed as the resolution professional, shall have the following duties commencing from the date of the approval (a) prepare a report in such form as may be specified, confirming whether the corporate debtor meets the requirements of section 54A, and the base resolution plan conforms to the requirements of section 54A; (b) file such reports and other documents, with the Board, as may be specified; and (c) perform such other duties as may be specified.

The fees payable to the insolvency professional in relation to the duties performed under sub-section (1) shall be determined and borne in such manner as may be specified and such fees shall form part of the pre-packaged insolvency resolution process costs, if the application for initiation of pre-packaged insolvency resolution process is admitted

Section 54C: Application to initiate pre-packaged insolvency resolution process

Where a corporate debtor meets the requirements of section 54A, a corporate applicant thereof may file an application with the Adjudicating Authority for initiating pre-packaged insolvency resolution process

The corporate applicant shall, along with the application, furnish— (a) the declaration, special resolution or resolution, as the case may be, and the approval of financial creditors for initiating pre-packaged insolvency resolution process in terms of section 54A; (b) the name and written consent, in such form as may be specified, of the insolvency professional proposed to be appointed as resolution professional, and his report; (c) a declaration regarding the existence of any transactions of the corporate debtor that may be within the scope of provisions in respect of avoidance of transactions in such form as may be specified; (d) information relating to books of account of the corporate debtor and such other documents relating to such period as may be specified.

The Adjudicating Authority shall, within a period of fourteen days of the receipt of the application, by an order admit the application, if it is complete.

Section 54D: Time limit for completion of the process

The pre-packaged insolvency resolution process shall be completed within a period of one hundred and twenty days from the pre-packaged insolvency commencement date.

The resolution professional shall submit the resolution plan, as approved by the committee of creditors, to the Adjudicating Authority, as the case may be, within a period of ninety days from the pre-packaged insolvency commencement date.

Where no resolution plan is approved by the committee of creditors within the time period, the resolution professional shall, on the day after the expiry of such time period, file an application with the Adjudicating Authority for termination of the pre-packaged insolvency resolution process in such form and manner as may be specified.

Section 54E: Declaration of moratorium and public announcement

The Adjudicating Authority shall, on the pre-packaged insolvency commencement date, along with the order of admission (a) declare a moratorium (b) appoint a resolution professional (c) cause a public announcement of the initiation of the pre-packaged insolvency resolution process to be made by the resolution professional immediately after his appointment.

The order of moratorium shall have effect from the date of such order till the date on which the pre-packaged insolvency resolution process period comes to an end.

Section 54F: Duties of resolution professional during pre-packaged resolution process

The resolution professional shall conduct the pre-packaged insolvency resolution process of a corporate debtor during the pre-packaged insolvency resolution process period.

The resolution professional shall perform the following duties, namely (a) confirm the list of claims submitted by the corporate debtor, in such manner as may be specified; (b) inform creditors regarding their claims as confirmed; (c) maintain an updated list of claims; (d) monitor management of the affairs of the corporate debtor; (e) inform the committee of creditors in the event of breach of any of the obligations of the Board of Directors or partners, as the case may be, of the corporate debtor; (f) constitute the committee of creditors and convene and attend all its meetings; (g) prepare the information memorandum on the basis of the preliminary information memorandum submitted under section 54G and any other relevant information, in such form and manner as may be specified; (h) file applications for avoidance of transactions under Chapter III or fraudulent or wrongful trading and (i) such other duties as may be specified.

The resolution professional shall exercise the following powers, namely (a) access all books of account, records and information available with the corporate debtor; (b) access the electronic records of the corporate debtor from an information utility having financial information of the corporate debtor; (c) access the books of account, records and other relevant documents of the corporate debtor available with Government authorities, statutory auditors, accountants and such other persons as may be specified; (d) attend meetings of members, Board of Directors and committee of directors, or partners, as the case may be, of the corporate debtor; (e) appoint accountants, legal or other professionals in such manner as may be specified; (f) collect all information relating to the assets, finances and operations of the corporate debtor for determining the financial position of the corporate debtor and the existence of any transactions that may be within the scope of provisions relating to avoidance of transactions

From the date of appointment of the resolution professional, the financial institutions maintaining accounts of the corporate debtor shall furnish all information relating to the corporate debtor available with them to the resolution professional, as and when required by him.

The personnel of the corporate debtor, its promoters and any other person associated with the management of the corporate debtor shall extend all assistance and cooperation to the resolution professional as may be required by him to perform his duties and exercise his powers.

The fees of the resolution professional and any expenses incurred by him for conducting the pre-packaged insolvency resolution process shall be determined in such manner as may be specified: Provided that the committee of creditors may impose limits and conditions on such fees and expenses: Provided further that the fees and expenses for the period prior to the constitution of the committee of creditors shall be subject to ratification by it.

Section 54G: List of claims and information memoranda

The corporate debtor shall, within two days of the pre-packaged insolvency commencement date, submit to the resolution professional the following information, updated as on that date, in such form and manner as may be specified, (a) a list of claims, along with details of the respective creditors, their security interests and guarantees, if any; and (b) a preliminary information memorandum containing information relevant for formulating a resolution plan.

Where any person has sustained any loss or damage as a consequence of the omission of any material information or inclusion of any misleading information in the list of claims or the preliminary information memorandum submitted by the corporate debtor, every person who (a) is a promoter or director or partner of the corporate debtor, as the case may be, at the time of submission of the list of claims or the preliminary information memorandum by the corporate debtor; or (b) has authorised the submission of the list of claims or the preliminary information memorandum by the corporate debtor, shall, without prejudice to section 77A, be liable to pay compensation to every person who has sustained such loss or damage.

No person shall be liable, if the list of claims or the preliminary information memorandum was submitted by the corporate debtor without his knowledge or consent.

Subject to section 54E, any person, who sustained any loss or damage as a consequence of omission of material information or inclusion of any misleading information in the list of claims or the preliminary information memorandum shall be entitled to move a court having jurisdiction for seeking compensation for such loss or damage.

Section 54H: Management of affairs of corporate debtor

During the pre-packaged insolvency resolution process period

(a) the management of the affairs of the corporate debtor shall continue to vest in the Board of Directors or the partners, as the case may be, of the corporate debtor, subject to such conditions as may be specified;

(b) the Board of Directors or the partners, as the case may be, of the corporate debtor, shall make every endeavour to protect and preserve the value of the property of the corporate debtor, and manage its operations as a going concern; and

(c) the promoters, members, personnel and partners, as the case may be, of the corporate debtor, shall exercise and discharge their contractual or statutory rights and obligations in relation to the corporate debtor, subject to the provisions of this Chapter and such other conditions and restrictions as may be prescribed.

Section 54I: Committee of creditors

The resolution professional shall, within seven days of the pre-packaged insolvency commencement date, constitute a committee of creditors, based on the list of claims, provided that the composition of the committee of creditors shall be altered on the basis of the updated list of claims, in such manner as may be specified, and any such alteration shall not affect the validity of any past decision of the committee of creditors.

The first meeting of the committee of creditors shall be held within seven days of the constitution of the committee of creditors.

Section 54J: Vesting management of corporate debtor with resolution professional

Where the committee of creditors, at any time during the pre-packaged insolvency resolution process period, by a vote of not less than sixty-six per cent of the voting shares, resolves to vest the management of the corporate debtor with the resolution professional, the resolution professional shall make an application for this purpose to the Adjudicating Authority.

On an application made under sub-section (1), if the Adjudicating Authority is of the opinion that during the pre-packaged insolvency resolution process (a) the affairs of the corporate debtor have been conducted in a fraudulent manner; or (b) there has been gross mismanagement of the affairs of the corporate debtor, it shall pass an order vesting the management of the corporate debtor with the resolution professional.

Section 54K: Consideration and approval of resolution plans

The corporate debtor shall submit the base resolution plan to the resolution professional within two days of the pre-packaged insolvency commencement date, and the resolution professional shall present it to the committee of creditors.

The committee of creditors may provide the corporate debtor an opportunity to revise the base resolution plan prior to its approval or invitation of prospective resolution applicants

The resolution plans and the base resolution plan, submitted under this section shall conform to the requirements referred to in sub-sections (1) and (2) of section 30, and the provisions of sub-sections (1), (2) and (5) of section 30 shall, mutatis mutandis apply, to the proceedings under this Chapter.

The committee of creditors may approve the base resolution plan for submission to the Adjudicating Authority if it does not impair any claims owed by the corporate debtor to the operational creditors.

Where (a) the committee of creditors does not approve the base resolution plan or (b) the base resolution plan impairs any claims owed by the corporate debtor to the operational creditors, the resolution professional shall invite prospective resolution applicants to submit a resolution plan or plans, to compete with the base resolution plan

The resolution applicants submitting resolution plans pursuant to invitation under sub-section (5), shall fulfil such criteria as may be laid down by the resolution professional with the approval of the committee of creditors, having regard to the complexity and scale of operations of the business of the corporate debtor and such other conditions as may be specified.

The resolution professional shall provide to the resolution applicants (a) the basis for evaluation of resolution plans, as approved by the committee of creditors subject to such conditions as may be specified; and the relevant information referred to in section 29, which shall, mutatis mutandis apply, to the proceedings under this Chapter.

The resolution professional shall present to the committee of creditors, for its evaluation, resolution plans which conform to the requirements referred to in sub-section (2) of section 30.

The committee of creditors shall evaluate the resolution plans presented by the resolution professional and select a resolution plan from amongst them.

Where, on the basis of such criteria as may be laid down by it, the committee of creditors decides that the resolution plan selected is significantly better than the base resolution plan, such resolution plan may be selected for approval, provided that the criteria laid down by the committee of creditors under this sub-section shall be subject to such conditions as may be specified.

Where the resolution plan selected is not considered for approval or does not fulfil the requirements, it shall compete with the base resolution plan, in such manner and subject to such conditions as may be specified, and one of them shall be selected for approval.

The resolution plan selected for approval may be approved by the committee of creditors for submission to the Adjudicating Authority: Provided that where the resolution plan selected for approval is not approved by the committee of creditors, the resolution professional shall file an application for termination of the pre-packaged insolvency resolution process in such form and manner as may be specified.

The approval of the resolution plan by the committee of creditors shall be by a vote of not less than sixty-six per cent of the voting shares, after considering its feasibility and viability, the manner of distribution proposed, taking into account the order of priority amongst creditors as laid down in sub-section (1) of section 53, including the priority and value of the security interest of a secured creditor and such other requirements as may be specified.

While considering the feasibility and viability of a resolution plan, where the resolution plan submitted by the corporate debtor provides for impairment of any claims owed by the corporate debtor, the committee of creditors may require the promoters of the corporate debtor to dilute their shareholding or voting or control rights in the corporate debtor: Provided that where the resolution plan does not provide for such dilution, the committee of creditors shall, prior to the approval of such resolution plan record reasons for its approval.

The resolution professional shall submit the resolution plan as approved by the committee of creditors to the Adjudicating Authority.

Section 54L: Approval of Resolution Plan

If the Adjudicating Authority is satisfied that the resolution plan as approved by the committee of creditors meets the requirements as referred to in sub-section (2) of section 30, it shall, within thirty days of the receipt of such resolution plan, by order, approve the resolution plan, provided that the Adjudicating Authority shall, before passing an order for approval of a resolution plan satisfy itself that the resolution plan has provisions for its effective implementation.

Where the Adjudicating Authority is satisfied that the resolution plan does not conform to the requirements it may, within thirty days of the receipt of such resolution plan, by an order, reject the resolution plan and pass an order under section 54N.

Notwithstanding anything to the contrary contained in this section, where the Adjudicating Authority has passed an order under sub-section (2) of section 54J and the resolution plan approved by the committee of creditors under sub-section (4) or sub-section (12), as the case may be of section 54K, does not result in the change in the management or control of the corporate debtor to a person who was not a promoter or in the management or control of the corporate debtor, the Adjudicating Authority shall pass an order— (a) rejecting such resolution plan; (b) terminating the pre-packaged insolvency resolution process and passing a liquidation order in respect of the corporate debtor as referred to in sub-clauses (i), (ii) and (iii) of clause (b) of sub-section (1) of section 33; and (c) declaring that the pre-packaged insolvency resolution process costs, if any, shall be included as part of the liquidation costs for the purposes of liquidation of the corporate debtor.

Section 54M: Appeal against approval of Resolution Plan

Any appeal against an order approving the resolution plan shall be on the grounds laid down in sub-section (3) of section 61.

Section 54N: Termination of pre-packaged Resolution Plan

Where the resolution professional files an application with the Adjudicating Authority, the latter shall, within thirty days of the date of such application, by an order, (i) terminate the pre-packaged insolvency resolution process; and (ii) provide for the manner of continuation of proceedings initiated.

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