In a fourth amendment dated 31st December 2017, the Insolvency and Bankruptcy Board of India (“IBBI”) amended the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (“Regulations”). The amendments provide literature on the following issues:
Pre-Amendment: A ‘dissenting financial creditor’ implied only a member of the Committee of Creditors (“COC”) who voted against the resolution plan.
Post-Amendment: Section 2(1)(f) of the Regulations now includes plan apart from one who has voted against it.
Impact: This amendment is a step towards expediting the resolution process as it prevents creditors who do not participate in the process from blocking the timely approvals of the plan.
Pre-Amendment: The resolution professional was required to disclose the liquidation value in the information memorandum circulated to the members of the COC and prospective bidders of the stressed asset.
Post-Amendment: The Regulations have been amended to exclude the requirement of including the liquidation value of the stressed asset in the information memorandum.
Impact: By way of this significant change, the IBBI has sought to weed out the anomaly whereby prospective bidders, already cognizant of the liquidation value, were basing their bids on such a guiding price and precluding the stressed asset from realizing its maximized value.
The objective is prevent banks from taking haircuts, as absence of benchmarks will likely force bidders to make their own assessment while submitting a resolution plan. Furthermore, the resolution professional is now mandated to provide members of the COC with the liquidation value of the asset only after having obtained an undertaking from each of the members, as to the confidentiality of the information. This is in addition to the resolution professional, itself maintaining confidentiality to avoid loss or damage of any kind.
The Amendment is a part of the Government’s continuing and concerted efforts to make the IBC a viable and seamless mechanism to resolve the mounting bad loans in the economy by ensuring optimal price discovery for assets and reduction of haircuts for lenders.