NEW DELHI: The past few days have seen the Insolvency and Bankruptcy Board of India (IBBI) make several amendments to the corporate insolvency resolution process. While the changes span a wide spectrum—from liquidation to resolution plans—the most impactful amendment is the requirement for a bankrupt firm’s Committee of Creditors (CoC) to vote on all eligible resolution plans simultaneously.
Under the existing process, once a bankrupt firm enters the insolvency process, its CoC is required to vote on a valid resolution plan. These plans are initially put through an evaluation matrix to sift out the chaff, leaving the CoC to decide among those that are left.
Now, with the recent spate of amendments, once the proposed plans pass the eligibility test, the CoC will have to vote on all of them. “The amendment made to the regulations today provides that after the evaluation of all resolution plans, the CoC shall vote on all compliant resolution plans simultaneously. The resolution plan which receives the highest votes, but not less than sixty-six per cent of the (total votes), shall be considered as approved,” the IBBI said in a statement on Friday.
According to Rajiv Chandak, Partner, Deloitte India, the changes come in the wake of a recent verdict by the National Company Law Appellate Tribunal (NCLAT) ruling that the CoC could vote on two eligible plans at the same time. The new rules have also introduced a provision for a tie-breaker. “The tie breaker formula could soon be the most important factor in a resolution plan getting selected. Like liquidation value, the treatment of this formula would also be the subject to significant scrutiny,” said Veena Sivaramakrishnan, partner, Shardul Amarchand Mangaldas & Co.
Other changes include allowing a class of creditors to choose an authorised representative from their own states or Union Territories; mandating these representatives to seek voting instructions from the creditors only after the circulation of the minutes of meeting—the agenda and preliminary views, however, may be sought before the meeting. These changes went into effect from August 7. Earlier last week, the IBBI also decided that a liquidator can claim fees only on the basis of the amount of work they have done during the process.
NCLAT verdict
A recent ruling allowed creditors to vote on two resolution plans in parallel