Panel proposes more changes in IBC to expedite insolvency resolution process

The Insolvency Law Committee (ILC) has proposed a slew of changes to make the Corporate Insolvency Resolution Process (CIRP) faster and iron out confusions and ambiguities around proceedings against Avoidance Transactions.

The two key changes proposed by the committee are to enable faster admission of insolvency application and faster approval of resolution plan by the National Company Law Tribunal (NCLT).

To enable faster approval of resolution plan the committee proposes that the NCLT should not take more than 30 days to either approve or reject a resolution plan. And if it does take more than the prescribed time limit, it should give in writing the reason for delay.

According to the committee, the approval of a resolution plan that has already been approved by the CoC should not be inordinately delayed, and therefore it proposes the code to be amended to provide the adjudicating authority with 30 days for approving or rejecting a resolution plan under Section 31.

In order to expedite the admission of insolvency application, the committee proposes that the NCLT would only be required to consider information Utility (IU)- authenticated records as evidence of default for Section 7 applications filed by such financial creditors as prescribed. It also proposes that financial creditors may be required to submit only IU-authenticated records to establish default for the purposes of admission of a Section 7 CIRP application.

The committee observes that although the Insolvency and Bankruptcy Code (IBC) provides that the Adjudicating Authority should dispose of an application for initiation of Corporate Insolvency Resolution Process within 14 days from the receipt of the application, the admission or rejection of such applications sometimes takes longer in practice.

It further says various efforts have been made recently to enable quicker disposal of applications for initiation of CIRPs including increase in the bench strength of NCLT. “In furtherance of such efforts, it was also considered if steps may be taken to build greater reliance on Information Utilities by certain categories of financial creditors, in order to enable quicker disposal of CIRP applications,” says the Insolvency Law Committee.

The committee also proposes steps to streamline the process of dealing with avoidable transactions and wrongful trading.

In line with this, says the committee, it is proposed that a clarification by way of an explanation may be added to Section 26 to clarify that proceedings for avoidance of transactions and wrongful trading can continue after the approval of a resolution plan by the adjudicating authority in CIRP.

The committee also proposes that 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 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.

Further, it says, 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 committee also proposes closure of voluntary liquidation process if during the process the corporate debtor gets business opportunities that can make it profitable or viable. It therefore proposes the closure of the process may thus be carried out by the corporate debtor subject to the same requirements as for initiation of the process — 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 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.

Also Read: Do not entertain unsolicited revision in resolution plans, suggests insolvency regulator