Improve quality of information memorandum, says IBBI chairman

There is a need to improve the quality of information memorandum under the corporate insolvency resolution process (CIRP), Ravi Mital, Chairperson of the Insolvency and Bankruptcy Board of India (IBBI), said in an event organised by the Institute of Chartered Accountants of India (ICAI). Mital also stressed on the need for the resolution professionals to be as transparent as possible.

Acknowledging the difficulty in collating information about a corporate debtor, where the promoters are unwilling to share information, Mital said that it is the duty of the resolution professional to put out as much information as possible in the information memorandum.

He says all corporate debtors take loan from banks, and they have balance sheet of the borrowing companies. He says that many banks even get forensic audits done on borrowing companies, and that there is no excuse for resolution professionals to not get enough details in the information memorandum.

Information Memorandum (IM) provides basis for preparing the resolution plan and consists of information about corporate debtor including list of creditors and the amount of claims admitted, debt due from related parties, number of workers and employees and liabilities due to them, details of material litigation, latest audited financial statements and audited financial statements for the last two years, provisional financial statements up to a date which is not earlier than fourteen days from the date of application, liquidation value etc.

The IBBI chairman also said that the more transparent the resolution professionals become, the better the results will be, and the recovery rate would also improve. He said that with a little more efforts, the recovery rate would improve from 32% to 40%.

Mital also stressed on the need for use of innovations to improve the efficiency of Insolvency and Bankruptcy Code (IBC). “No one will take action against you if you do genuine innovations,” says the IBBI chairman addressing the resolution professionals

Citing the example of Jaypee Associates (without mentioning the name), Mital said the company is in the business of real estate, cement, runs hospitals and colleges. He said the resolution professional would need to be innovative to resolve cases like this. He exhorted part resolution in such cases.

He, however, praised the work done by resolution professionals and advised them to look internationally to resolve insolvency cases. “I think our resolution professionals should really take over projects which are being done in other countries because you have done better than what they have done,” he said.

On the criticism over delays in resolution, Mital pointed out that in 2023-24, 270 cases saw resolution which is double the average of 125 resolution a year. “What does this mean? This means that we are speeding up on an average,” said the regulator.

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