The Insolvency and Bankruptcy Board of India (IBBI) published a discussion paper on 7 June 2023 proposing significant amendments to the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. The proposals aim to address declining resolution rates, improve the value realised through resolution plans, and reduce delays that had increasingly plagued the Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016 (IBC).
Background
By mid-2023, the IBC had been operational for nearly seven years. While it had established itself as the primary framework for corporate insolvency resolution in India, several systemic concerns had emerged. The IBBI noted that fewer companies were achieving successful resolution, resolution values were declining relative to liquidation values, and the statutory timeline of 330 days for CIRP completion was routinely exceeded.
According to IBBI's data, a significant proportion of CIRPs were extending beyond the statutory timeline, with the average resolution time exceeding 500 days in many cases. The Committee of Creditors (CoC) process, while designed to be market-driven, was experiencing inefficiencies in claim admission, expression of interest stages, and voting on resolution plans. The discussion paper sought to address these structural bottlenecks.
Key Proposals
The discussion paper contained the following principal recommendations:
Extended claim submission window: Proposed amendment to Regulation 12 to allow creditors to submit claims beyond the initial 90-day period without requiring adjudicating authority intervention. Resolution professionals would be required to provide written reasons for rejecting any claim, enhancing transparency.
Mandatory audit for high-value CIRPs: Where the corporate debtor's assets exceed Rs 100 crore as per the last available financial statements, the Resolution Professional must ensure an independent audit of the insolvency resolution process cost after such cost is finalised for the financial year.
Authorised Representative fee enhancement: The paper proposed doubling the fee payable to authorised representatives of creditor classes, recognising that the duties and workload of authorised representatives had expanded significantly since the original fee structure was established.
Improved voting process: Proposals to streamline the CoC voting mechanism, including clearer timelines for voting rounds and mechanisms to prevent strategic delays by dissenting creditors.
Expression of Interest reforms: Modifications to the process for inviting and evaluating expressions of interest from prospective resolution applicants, aimed at increasing competition and improving resolution plan values.
Implications for Practitioners
Insolvency practitioners and Resolution Professionals should prepare for regulatory changes that will alter day-to-day CIRP management. The extended claim submission window reduces the urgency of early-stage claim filing but also creates the potential for late-stage claims to disrupt advanced resolution negotiations.
The mandatory audit requirement for high-value CIRPs adds a compliance layer and cost that Resolution Professionals must factor into their fee structures and timelines. However, it also enhances creditor confidence in the transparency of process costs.
For law firms advising creditors, the enhanced authorised representative fee is a welcome recognition of the expanding role these representatives play. The voting process reforms should reduce instances of strategic delay, potentially accelerating the overall resolution timeline.
Practitioners should note that the IBBI invited public comments until 27 June 2023, and the proposals were expected to be formalised through regulation amendments in subsequent months.