Corporate Law Daily
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Today’s newsletter analytically summarizes the top Corporate Law stories reported at?taxmann.com.
Introduction
The Ministry of Corporate Affairs (MCA) has recently released a consultation paper outlining proposed changes to the Insolvency and Bankruptcy Code, 2016. The purpose of these changes is to improve transparency, reduce delays, and ensure efficient decision-making in insolvency proceedings.
The proposals aim to address various issues faced by stakeholders, including creditors, debtors, and insolvency professionals, in the current system. Overall, the MCA's proposed changes aim to create a more efficient and effective insolvency framework for all stakeholders involved. The key highlights of the proposed changes are as follows:
Introduction of an E-platform in Insolvency Proceedings to streamline the insolvency process
The MCA has considered that the introduction of an e-platform for insolvency proceedings may provide for a better case management system, automated processes to file applications with the Adjudication Authorities (AAs), delivery of notices, enabling interaction of Insolvency Professionals (IPs) with stakeholders, etc.
The e-platform will provide regulators and Adjudicating Authorities with better oversight by consolidating information and making it easily accessible.
More reliance on data with Information Utilities (IUs) while considering applications
Presently, section 7 and 9 of the code provides that in addition to the record of the default available with the IUs, other evidence can also be furnished to establish that a default has occurred. Now, it has been proposed that the code may be amended to only allow the Adjudicating Authority to use the record of default from the Information Utilities when evaluating applications under sections 7 and 9 of the Code.
An application filed under section 7 ‘must’ be admitted if the default is established
Section 7 of the Code provides for an application by a financial creditor for the commencement of the CIRP in respect of a Corporate Debtor (CD). The Supreme Court has interpreted the use of ‘may’ in section 7(5) to indicate that the AA has the discretion to admit or reject despite the existence of a default.
Now, it has been proposed that an application filed under section 7 ‘must’ be admitted if the default is established, the AA is only required to be satisfied with the occurrence of default and fulfilment of procedural requirements for this specific purpose (and nothing more). Where a default is established, it is mandatory for the AA to admit the application and initiate the CIRP.
Clarification on the applicability of 14 days given u/s 7
The timeline of 14 days provided in section 7 has also been interpreted to apply only for ascertainment of default. However, it is also intended to apply to the AA’s decision to admit or reject the application under section 7(5).
Accordingly, it is proposed that a suitable amendment may be made to clarify the applicability of the timeline.
IBBI vide. its report dated December 10, 2021, has issued the report of CBIRC-II on group insolvency. Among other key recommendations, the Committee has endorsed a group insolvency framework that is voluntary, flexible and enabling in nature to be introduced under IBC 2016 in phases. The Committee further recommended that the framework should only apply to corporate debtors in respect of whom a CIRP or liquidation process is ongoing. The law shall not apply to solvent members. The key highlights of the ‘Cross Border Insolvency Rules Committee’ are as follows:
Committee recommends a broad and inclusive definition of ‘group’ under IBC
The Committee has recommended providing for a broad and inclusive definition of ‘group’ so as to include a large number of corporate debtors within the ambit of the framework. The definition of ‘group’ may be based on the criteria of control and significant ownership.
Further, it was recommended that the definition should be applicable to all entities that fall within the definition of a ‘corporate debtor’ under IBC, i.e., companies and LLPs.
Framework for group insolvency shall only apply to Corporate Debtor against whom CIRP is ongoing
The Committee has recommended that the framework for group insolvency should only apply to corporate debtors in respect of whom a CIRP or liquidation process is ongoing. Further, the law shall not apply to solvent members of the group.
Filing of joint applications for CIRP against multiple corporate debtors may be permitted
The Committee has recommended that the filing of joint applications for initiation of CIRP against multiple corporate debtors belonging to the same group may be permitted. Though, filing jointly may be permitted, however, the application form for each corporate debtor should be separate.
Proceedings w.r.t corporate debtors belonging to the same group may take place under the same Adjudicating Authority
The Committee has recommended that all the proceedings related to corporate debtors belonging to the same group can take place under the same Adjudicating Authority. To give this effect, all pending applications and proceedings in respect of a group member may be transferred to the NCLT which is the first to admit an application for triggering the insolvency resolution process.
Formation of Group CoC comprising representatives from CoCs of all group members
The Committee recommends that a group CoC may be formed with adequate representation from CoCs of all group members. The group CoC can only provide procedural assistance and should not be tasked with taking decisions that affect the substantive rights and obligations of the parties. Further, the constitution and formation of a group CoC may be subject to negotiation amongst the parties.
Mandatory Cooperation and Coordination among CoCs and IPs for group corporate debtors
The Committee has recommended mandatory cooperation and coordination among the CoCs and insolvency professionals appointed in respect of corporate debtors belonging to the same group.
Voluntary Participation of Corporate Debtor in group coordination proceedings
The Committee has recommended that the voluntary participation of corporate debtors in group coordination proceedings. The CoCs may have the flexibility to opt-in to the group coordination proceedings until 30 days after its opening. Any opt-ins after such time may be permitted with the approval of the participating CoCs and liquidators. Further, for such approval, each CoC would be required to vote in favour of such opt-in by at least 50% of each of their voting shares.
Approval of Participating CoCs by 66% of voting shares to be required for Group Strategy
The Committee recommended that a group strategy should require the approval of all participating CoCs by 66% of each of their voting shares respectively. Where a corporate debtor participating in a group coordination proceeding is undergoing liquidation, the liquidator would be required to decide whether to approve the group strategy for the corporate debtor it represents.
Further, once approved, the group strategy is required to be filed with the Adjudicating Authority and shall be binding on all the parties to the group strategy.
Cost of conducting group coordination proceedings should form part of liquidation process costs
The Committee recommends that the costs of conducting group coordination proceedings should form part of the insolvency resolution or liquidation process costs of the participating group members. Further, where group coordination proceedings are opened, an additional period of 90 days can be added to the time period for completion of the insolvency resolution process for the participating corporate debtors.
That’s it from us for today! Stay Tuned for more updates from?Taxmann.com
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