The Insolvency and Bankruptcy Board of India (IBBI) has come out with revised norms for insolvency resolution process paving the way for home buyers to seek relief as financial creditors. The revised norms prescribe clear timelines to be followed by resolution professionals and permit withdrawal of insolvency applications provided certain conditions are met.
In a significant move, the IBBI has mandated that a resolution professional should determine whether a corporate debtor had indulged in fraudulent transactions within a specified time period during the resolution process.
Changes in the norms are a logical outcome of the government’s ordinance amending the Insolvency and Bankruptcy Code (IBC) in June, and they lead to more clarity on procedural requirements for various classes of creditors, including home buyers.
"Wherever the corporate debtor has classes of creditors having at least ten creditors in the class, the interim resolution professional shall offer a choice of three insolvency professionals... to act as the authorised representative of creditors in each class.
"... The insolvency professional, who is the choice of the highest number of creditors in the class, shall be appointed as the authorised representative of the creditors of the respective class," an official release said today.
In instances where the interest rate has not been agreed upon between the parties, the voting share of such a creditor would be in proportion to the financial debt that includes an annual eight per cent interest rate. This assumes significance, especially for home buyers, as it provides clarity on calculation of total financial debt.
A resolution professional would now be required to form an opinion whether the corporate debtor was involved in preferential, undervalued, extortionate or fraudulent transactions as well as make a determination of any such activity within a specified time period, as per the release.
Besides, the revised regulations have put in place a clear road map to be followed by the resolution professionals. Now, they have to publish an invitation for Expression of Interest by the 75th day from the insolvency commencement date and the resolution professionals have to publish a provisional list of prospective applicants within 10 days from the EoI submission deadline.
"The resolution professional shall issue the information memorandum, the evaluation matrix and the request for resolution plans (RFRP), within five days of issue of the provisional list to the prospective resolution applicants and allow at least 30 days for submission of resolution plans," the release said.
Further, the resolution plan should demonstrate that it addresses the cause of default and that the applicant has the capability to implement the plan, among other factors.
An application seeking withdrawal of insolvency proceedings would be accepted under this law if the same has been approved by the Committee of Creditors (CoC) concerned with 90 per cent voting share. Once the CoC nod is in place, then the resolution professional has to submit the application to the adjudicating authority on behalf of the applicant within three days of such an approval.
"A meeting of the CoC shall be called by giving not less than five days' notice in writing to every participant.
"The CoC may, however, reduce the notice period from five days to such other period of not less than forty-eight hours where there is any authorised representative and to twenty-four hours in all other cases," the release said.
The revised norms also come against the backdrop of instances where they have been issues related to resolution professionals and entities involved.