Partial resolution under CIRP in India is on right track

By Veena Sivaramakrishnan and Apeksha , Shardul Amarchand Mangaldas & Co

Amendments to the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 – also known as the Corporate Insolvency Resolution Process (CIRP) regulations – introduce regulation 36C permitting a resolution applicant to bid for one or more assets of a corporate debtor in insolvency, especially when the debtor’s total asset book value exceeds INR1 billion (USD12 million) and there is no resolution plan for their entire business.

In the previous framework, it was observed that a corporate debtor had both functional and non-functional assets at times spread across different geographical locations, and prospective resolution applicants (PRAs) were reluctant to make additional investments for acquiring the entire business. This automatically resulted in several PRAs opting out of the resolution process after the stage of submission of expression of interest or resolution plan.

Veena Sivaramakrishnan
Shardul Amarchand Mangaldas & Co

Consequently (and in some cases inadvertently), the corporate debtor slipped into liquidation and sale of depreciated assets by this stage invariably fetched much less value.

Against this backdrop, and reflecting on the basic pillar of the Insolvency and Bankruptcy Code, 2016 to maximise value of assets, it was recognised that a competitive bidding process among multiple PRAs is a must.

Accordingly, the CIRP regulations were recently amended to enable the resolution professional to formulate a plan for marketing individual assets of the corporate debtor in consultation and with prior approval of the committee of creditors (CoC).

Although the amendments specify that a resolution professional will formulate a marketing strategy only in cases where the corporate debtor’s total assets exceed INR1 billion, such a strategy can also be prepared in other cases with the CoC’s prior approval.

Senior associate
Shardul Amarchand Mangaldas & Co

In cases where no resolution plan has been submitted for the entire business, the resolution professional is required to re-issue a request for a resolution plan for one or more assets. It is intended that this will result in a combination of PRAs bidding for selected business units or individual assets.

It is also provided that the resolution plans include the manner of dealing with remaining assets. In effect, the corporate debtor as whole is intended to be resolved.

It is pertinent to note that this approach is a fallback event and not a primary option. To facilitate this, the Insolvency and Bankruptcy Board of India (IBBI) has also reduced timelines for publishing expressions of interest by the resolution professional to 60 days from the insolvency commencement date, so the process of identifying PRAs can start earlier.

Similarly, the previous prescribed timeline of 54 days for submission of the information memorandum to the CoC is extended to 95 days from the insolvency commencement date.

As per the amended regulations, the information memorandum should now highlight the key selling proposition and contain all relevant and significant information, including all geographical locations of fixed assets, snapshots of business performance, key contracts, investments, employees, customers and supply chain linkages. This will provide PRAs with critical material information, helping them assess the position of the corporate debtor as a going concern.

Additionally, to aid PRAs in submitting an informed resolution plan, the IBBI has advanced the timeline for filing the avoidance application by the resolution professional to 130 days from the insolvency commencement date, requiring a copy of the application to be forwarded to PRAs for their consideration at the time of submission of the resolution plan.

In addition to fetching superior value for stakeholders of the corporate debtor and reducing delays in the corporate insolvency resolution process, the amendments create transparency in the process by providing more information to PRAs.

By advancing the timelines, the amendment enables a longer timeframe for the resolution professional to invite relevant PRAs, and increase the chances of resolving the corporate debtor.

Finally, these amendments hopefully garner greater investor interest. Any amendment reiterating the basic pillar of the parent legislation is bound to strengthen implementation of India’s insolvency regime. While partial resolution does not seem like a resolution to the naked eye, given the above-mentioned principles and overall objective, this would be a positive change.

Veena Sivaramakrishnan is a partner and Apeksha is a senior associate at Shardul Amarchand Mangaldas & Co

Shardul Amarchand Mangaldas & Co

Express Towers, 23rd Floor,
Nariman Point, Mumbai,
Maharashtra 400 021, India

Contact details:
T: +91 22 4933 5555

New Delhi | Mumbai | Gurugram | Chennai |
Bengaluru| Ahmedabad | Kolkata