IBBI Amendments on Liquidation Value and Price Discovery

[Shaleen Tiwari is an Associate at Jerome Merchant & Partners, Mumbai]

In an amendment dated 31 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 (“CIRP Regulations”). The amendment came close on the heels of the Insolvency and Bankruptcy (Code) Amendment Ordinance, 2017, which sought to limit the participation of promoters of stressed assets and willful defaulters in the CIRP of their assets. Coterminous with the same, the IBBI has attempted to further insulate the worth of an asset under CIRP from unwarranted exposure. The amendments provide for the following issues which have been collated hereunder:

(a)        Pre-Amendment: A ‘dissenting financial creditor’ implied only a member of the Committee of Creditors (“COC”) who voted against the resolution plan.

Post-Amendment: Regulation 2(1)(f) now includes within the meaning of a ‘dissenting financial creditor’ a creditor who has abstained from voting on a resolution plan, apart from one who has voted against it.

Impact: This seeks to regularize voting on the COC and to provide it with greater flexibility. Such creditors are to be given priority in repayment to the extent of the liquidation value.

(b)        Pre-Amendment: The resolution professional was required to disclose, in the information memorandum circulated to the members of the COC and prospective bidders of the stressed asset, its liquidation value.

Post-Amendment: Regulations 35(3), 35(4) [new addition] and 36(2)(j,k) [omitted] have been amended to obviate with the need for the resolution professional to disclose, in the information memorandum, the liquidation value of the stressed asset to its prospective bidders.

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. Banks may thus avoid 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 and adherence to insider trading laws. This is in addition to the resolution professional itself maintaining confidentiality to avoid loss or damage of any kind.

(c)        Pre-Amendment: The timeline for submission of resolution plans by resolution applicants was open ended and variable.

Post-Amendment: Regulation 39(1) has been amended to provide for submission of bids by bidders within the time detailed in the invitation for the resolution plans,

Impact: The earlier timeline was almost an abstract dictation, whereby the resolution applicant had to ‘endeavour’ to submit a resolution plan to the resolution professional within a prescribed time. Being subjective, the resolution applicants were often submitting plans beyond the stated timelines. IBBI has now eliminated all such subjectivity by prescribing a non-negotiable timeline, thereby expediting the resolution process.

The amendment is a part of the Government’s continuing and concerted efforts to make the Insolvency and Bankruptcy Code 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 lender.

– Shaleen Tiwari

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