Key Points Before Opting Insolvency Resolution Plan for Corporate Persons
28 Dec 2016
Government of India in order to consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons, in a time bound manner has come up with a very practical kind of law the Insolvency and Bankruptcy Code, 2016.
The Code basically represents the core intention of the government for reforms, as it aims to maximize the value of the assets of such person, to promote entrepreneurship as well as availability of credit and balance the interest of all stakeholders.
Govt. has also made alteration in the order of priority of payment of Government dues.
If anyone going for corporate insolvency resolution plan this article may be of great help in order to understand the process involved in insolvency resolution plan for corporate persons.
Who may initiate corporate insolvency resolution process?
1. As per section 6 of the Insolvency and Bankruptcy Code, 2016 a financial creditor, an operational creditor or the corporate debtor itself may initiate corporate insolvency resolution process if corporate debtor commit default, in Form 1, Form 5 and Form 6 respectively.
2. As per section 7 financial creditor either by itself or jointly with other financial creditors may file an application for initiating corporate insolvency resolution process against a corporate debtor before the Adjudicating Authority when a default has occurred.
3. As per section 8 operational creditor may, on the occurrence of a default, deliver a demand notice of unpaid operational debtor copy of an invoice demanding payment of the amount involved in the default to the corporate debtor in prescribed form.
4. As per section 10 where a corporate debtor has committed a default, a corporate applicant thereof may file an application for initiating corporate insolvency resolution process with the Adjudicating Authority
Person not entitled to make an application
As per section 11 of the Insolvency and Bankruptcy Code, 2016 following person are not entitled to make an application: -
a) a corporate debtor undergoing a corporate insolvency resolution process; or
b) a corporate debtor having completed corporate insolvency resolution process twelve months preceding the date of making of the application; or
c) a corporate debtor or a financial creditor who has violated any of the terms of resolution plan which was approved twelvemonths before the date of making of an application under this Chapter; or
d) a corporate debtor in respect of whom a liquidation order has been made.
Appointment of interim resolution professional Section 16(1),(2), (3)
a) The Adjudicating Authority shall appoint an interim resolution professional within fourteen days from the insolvency commencement date.
b) Where the application for corporate insolvency resolution process is made by a financial creditor or the corporate debtor the resolution professional, as proposed respectively in the application under section 7 or section 10, shall be appointed as the interim resolution professional, if no disciplinary proceedings are pending against him.
c) Where the application for corporate insolvency resolution process is made by an operational creditor and no proposal for an interim resolution professional is made the Adjudicating Authority shall make a reference to the Board for the recommendation of an insolvency professional, than Board shall, within ten days of the receipt of a reference from the Adjudicating Authority under sub-section (3), recommend the name of an insolvency professional to the Adjudicating Authority and the person recommended shall be appointed as the interim resolution professional by the Adjudicating Authority.
Eligibility for resolution professional
An insolvency professional shall be eligible to be appointed as a resolution professional fora corporate insolvency resolution process of a corporate debtor if he, and all partners and directors of the insolvency professional entity of which he is a partner or director, are independent of the corporate debtor
Access to Books
The interim resolution professional may access the books of account, records and other relevant documents and information, to the extent relevant for discharging his duties under the Code, of the corporate debtor held with depositories of securities or professional adviser of the corporate debtor or information utilities or other registries that records the ownership of assets or members, promoters,partners, board of directors and joint venture partners of the corporate debtor; and contractual counter parties of the corporate debtor.
Public Announcements
An insolvency professional shall make a public announcement immediately on his appointment as an interim resolution professional in Form A of the Schedule to be published in one English and one regional language newspaper with wide circulation at the location of the registered office and principal office, if any, of the corporate debtor and any other location where in the opinion of the interim resolution professional, the corporate debtor conducts material business operations on the website, if any, of the corporate debtor; and on the website,if any, designated by the Board for the purpose, provide the last date for submission of proofs of claim, which provide the last date for submission of proofs of claim, which shall be fourteen days from the date of appointment of the interim resolution professional.
Claims by operational creditors
A person claiming to be an operational creditor, other than workman or employee of the corporate debtor, shall submit proof of claim to the interim resolution professional in person, by post or by electronic means in Form B provided that such person may submit supplementary documents or clarifications in support of the claim before the records available with an information utility, if any; or other relevant documents,including a contract for the supply of goods and services with corporate debtor or an invoice demanding payment for the goods and services supplied to the corporate debtor or an order of a court or tribunal that has adjudicated upon the non-payment of a debt, if any or financial accounts.
Claims by financial creditors
1. A person claiming to be a financial creditor of the corporate debtor shall submit proof of claim to the interim resolution professional in electronic form in Form C.
2. The person may submit supplementary documents or clarifications in support of the claim before the constitution of the creditors’ committee.
3. The existence of debt due to the financial creditor may be proved on the basis of the records available with an information utility, if any; or other relevant documents, including a financial contract supported by financial statements as evidence of the debt; a record evidencing that the amounts committed by the financial creditor to the corporate debtor under a facility has been drawn by the corporate debtor or financial statements showing that the debt has not been repaid or an order of a court or tribunal that has adjudicated upon the non-payment of a debt, if any.
Claims by worker sand Employees
1. A person claiming to be a workman or an employee of the corporate debtor shall submit proof of claim to the interim resolution professional in person, by post or by electronic means in Form D.
2. The person may submit supplementary documents or clarifications in support of the claim, on his own or if required by the interim resolution professional, before the constitution of the committee.
3. Where there are dues to numerous workmen or employees of the corporate debtor, an authorized representative may submit one proof of claim for all such dues on their behalf in Form E.
Substantiation of Claims
The interim resolution professional or the resolution professional, as the case may be, may call for such other evidence or clarification as he deems fit from a creditor for substantiating the whole or part of its claim.
Cost of Proof
A creditor shall bear the cost of proving the debt due to such creditor.
Submission of Proof of Claims
1. A creditor shall submit proof of claim on or before the last date mentioned in the public announcement
2. Those who failed to submit proof of claim within the time stipulated in the public announcement, may submit such proof to the interim resolution professional or the resolution professional, as the case may be, till the approval of a resolution plan by the committee and if as a financial creditor, it shall be included in the committee from the date of admission of such claim provided that such inclusion shall not affect the validity of any decision taken by the committee prior to such inclusion.
Verification of Claims
The interim resolution professional or the resolution professional, as the case may be,shall verify every claim, as on the insolvency commencement date, within seven days from the last date of the receipt of the claims, and thereupon maintain a list of creditors containing names of creditors along with the amount claimed by them, the amount of their claims admitted and the security interest, if any,in respect of such claims, and update it.
The list of creditors shall be –
(a) available for inspection by the persons who submitted proofs of claim;
(b) available for inspection by members, partners, directors and guarantors of the corporate debtor;
(c) displayed on the website, if any, of the corporate debtor;
(d) filed with the Adjudicating Authority; and
(e) presented at the first meeting of the committee.
Determination of amount of Claims
Where the amount claimed by a creditor is not precise due to any contingency or other reason,the interim resolution professional or the resolution professional, as the case may be, shall make the best estimate of the amount of the claim based on the information available with him. The interim resolution professional or the resolution professional, as the case may be, shall revise the amounts of claims admitted, including the estimates of claims made under sub-regulation (1), as soon as may be practicable, when he comes across additional information warranting such revision.
Debt in Foreign Currency
The claims denominated in foreign currency shall be valued in Indian currency at the official exchange rate as on the insolvency commencement date. The official exchange rate” is the reference rate published by the Reserve Bank of India or derived from such reference rates.
Committee with only operational creditors
Where the corporate debtor has no financial debt or where all financial creditors are related parties of the corporate debtor, the committee shall consist of members as under -
a. eighteen largest operational creditors by value provided that if the number of operational creditors is less than eighteen, the committee shall include all such operational creditors;
b. one representative elected by all workmen other than those workmen included under sub-clause and
c. one representative elected by all employees other than those employees included under sub-clause (a).
A member of the committee shall have voting rights in proportion of the debt due to such creditor or debt represented by such representative, as the case may be, to the total debt.
First meeting of the committee
The interim resolution professional shall file a report certifying constitution of the committee to the Adjudicating Authority on or before the expiry of thirty days from the date of his appointment. The interim resolution professional shall convene the first meeting of the committee within seven days of filing the report.
Meeting of the Committee
A resolution professional may convene a meeting of the committee as and when he considers necessary, and shall convene a meeting if a request to that effect is made by members of the committee representing thirty-three per cent of the voting rights.
Notice for meeting of the committee
A meeting of the committee shall be called by giving not less than seven days’ notice in writing to every participant, at the address it has provided to the resolution professional and such notice may be sent by hand delivery, or by post but in any event, be served on every participant by electronic means in accordance with Regulation 20. The committee may reduce the notice period from seven days to such other period of not less than twenty-four hours, as it deems fit
Quorum of the meeting
1. A meeting of the committee shall be quorate if members of the committee representing at least thirty three percent of the voting rights are present either in person or by video conferencing or other audio and visual means.
2. The committee may modify the percentage of voting rights required for quorum in respect of any future meetings of the committee.
3. Where a meeting of the committee could not be held for want of quorum, unless the committee has previously decided otherwise, the meeting shall automatically stand adjourned at the same time and place on the next day.
4. In the event a meeting of the committee is adjourned in accordance with sub-regulation (2), the adjourned meeting shall be quorate with the members of the committee attending the meeting.
Participation through video conferencing
1. The notice convening the meetings of the committee shall provide the participants an option to attend the meeting through video conferencing or other audio and visual means.
2. The resolution professional shall make necessary arrangements to ensure uninterrupted and clear video or audio and visual connection and shall take due and reasonable care to safeguard the integrity of the meeting by ensuring sufficient security and identification procedures and also to ensure availability of proper video conferencing or other audio and visual equipment or facilities for providing transmission of the communications for effective participation of the participants at the meeting.
3. He must record the proceedings and prepare the minutes of the meeting to store for safe keeping and marking the physical recording(s) or other electronic recording mechanism as part of the records of the corporate debtor to ensure that no person other than the intended participants attends or has access to the proceedings of the meeting through video conferencing or other audio and visual means.
4. He must ensure that the participants attending the meeting through audio and visual means are able to hear and see, clearly during the meeting. Those persons who are differently able, may make request to the resolution professional to allow a person to accompany him at the meeting.
Conduct of meeting
1. The resolution professional shall act as the chairperson of the meeting of the committee, at the commencement of a meeting and take a roll call when every participant attending through video conferencing or other audio and visual means shall state, for the record, the following: -
a) his name
b) whether he is attending in the capacity of a member of the committee or any other participant whether he is representing a member or group of members or
c) the location from where he is participating or
d) that he has received the agenda and all the relevant material for the meeting; and
e) that no one other than him is attending or has access to the proceedings of the meeting at the location of that person.
2. After the roll call, the resolution professional shall inform the participants of the names of all persons who are present for the meeting and confirm if the required quorum is complete. In addition, ensure that the required quorum is present throughout the meeting from the commencement of the meeting till its conclusion.
3. No person other than the participants and any other person whose presence is required by the resolution professional shall be allowed access to the place where meeting is held or to the video conferencing or other audio and visual facility, without the permission of the resolution professional.
4. The resolution professional shall ensure that minutes are made in relation to each meeting of the committee and such minutes shall disclose the particulars of the participants who attended the meeting in person, through video conferencing, or other audio and visual means. The resolution professional shall circulate the minutes of the meeting to all participants by electronic means within forty-eight hours of the said meeting.
Voting by the committee
1. When all members are present in a meeting, the resolution professional shall take a vote of the members of the committee on any item listed for voting after discussion on the same. At the conclusion of a vote at the meeting, the resolution professional shall announce the decision taken on items along with the names of the members of the committee who voted for or against the decision, or abstained from voting.
2. If all members are not present at a meeting, a vote shall not be taken at such meeting and the resolution professional shall circulate the minutes of the meeting by electronic means to all members of the committee within forty eight hours of the conclusion of the meeting; and seek a vote on the matters listed for voting in the meeting, by electronic voting system where the voting shall be kept open for twenty four hours from the circulation of the minutes.
Voting through electronic means
1. The resolution professional shall provide each member of the committee the means to exercise its vote by either electronic means or through electronic voting system.
2. The expressions ‘‘voting by electronic means’’ or ‘‘electronic voting system’’means a “secured system” based process of display of electronic ballots,recording of votes of the members of the committee and the number of votes polled in favour or against, such that the voting exercised by way of electronic means gets registered and counted in an electronic registry in a centralized server with adequate cyber security.
3. The expression ‘‘secured system’’ means computer hardware, software, and procedure that are reasonably secure from unauthorized access and misuse and provide a reasonable level of reliability and correct operation which are reasonably suited to perform the intended functions and adhere to generally accepted security procedures.
4. Once a vote on a resolution is cast by a member of the committee, such member shall not be allowed to change it subsequently.
5. At the end of the voting period, the voting portal shall forthwith be blocked. At the conclusion of a vote held, the resolution professional shall announce and make a written record of the summary of the decision taken on a relevant agenda item along with the names of the members of the committee who voted for or against the decision, or abstained from voting.
6. The resolution professional shall circulate a copy of the record made to all participants by electronic means within twenty-four hours of the conclusion of the voting.
Appointment of registered valuers
The interim resolution professional shall within seven days of his appointment, appoint two registered valuers to determine the liquidation value of the corporate debtor provided that the following persons shall not be appointed as registered valuers:
a) are lative of the interim resolution professional;
b) a related party of the corporate debtor;
c) an auditor of the corporate debtor in the five years preceding the insolvency commencement date; or
d) a partner or director of the insolvency professional entity.
Transfer of debts due to creditors
In the event a creditor assigns or transfers the debt due to such creditor to any other person during the insolvency resolution process period, both parties shall provide the interim resolution professional or the resolution professional, as the case maybe, the terms of such assignment or transfer and the identity of the assignee or transferee. The resolution professional shall notify each participant and the Adjudicating Authority of any resultant change in the committee within two days of such change
Sale of assets outside the ordinary course of business
1. The resolution professional may sell unencumbered asset(s) of the corporate debtor,other than in the ordinary course of business, if he is of the opinion that such a sale is necessary for a better realization of value under the facts and circumstances of the case.
2. The book value of all assets sold during corporate insolvency resolution process period in aggregate shall not exceed ten percent of the total claims admitted by the interim resolution professional. A sale of assets shall require the approval of the committee.
3. A bonafide purchaser of assets sold shall have a free and marketable title to such assets notwithstanding the terms of the constitutional documents of the corporate debtor, shareholders’ agreement, joint venture agreement or other document of a similar nature.
Assistance of local district administration
The interim resolution professional or the resolution professional, as the case may be, may make an application to the Adjudicating Authority for an order seeking the assistance of the local district administration in discharging his duties under the Code or these Regulations
Insolvency resolution process cost
Insolvency resolution process costs shall mean amounts due to suppliers of essential goods and services and amounts due to a person whose rights are prejudicially affected on account of the moratorium imposed. The expenses incurred on or by the interim resolution professional to the extent ratified. It also includes expenses incurred on or by the resolution professional and other costs directly relating to the corporate insolvency resolution process and approved by the committee.
Essential supplies
The essential goods and services shall mean electricity, water, telecommunication services and information technology services to the extent these are not a direct input to the output produced or supplied by the corporate debtor. Water supplied to a corporate debtor will be essential supplies for drinking and sanitation purposes, and not for generation of hydro-electricity.
Cost of interim resolution professional
The applicant shall fix the expenses to be incurred on or by the interim resolution professional.The Adjudicating Authority shall fix expenses where the applicant has not fixed expenses. The applicant shall bear the expenses which shall be reimbursed by the committee to the extent it ratifies. The amount of expenses ratified by the committee shall be treated as insolvency resolution process costs.
Explanation- For the purposes of this Regulation, “expenses” mean the fee to be paid to the interim resolution professional and other expenses, including the cost of engaging professional advisers, to be incurred by the interim resolution professional.
Resolution professional cost
The committee shall fix the expenses to be incurred on or by the resolution professional and the expenses shall constitute insolvency resolution process costs.
Explanation- For the purposes of this Regulation, “expenses” mean the fee to be paid to the resolution professional and other expenses, including the cost of engaging professional advisors, to be incurred by the resolution professional
Liquidation value
1. Liquidation value is the estimated realizable value of the assets of the corporate debtor if the corporate debtor were to be liquidated on the insolvency commencement date.
2. Liquidation value shall be determined by two appointed registered valuers who shall submit to the interim resolution professional or the resolution professional, as the case may be, an estimate of the liquidation value computed in accordance with internationally accepted valuation standards, after physical verification of the inventory and fixed assets of the corporate debtor.
3. If in the opinion of the interim resolution professional or the resolution professional, as the case may be, the two estimates are significantly different, he may appoint another registered valuer who shall submit an estimate computed in the same manner; and the average of the two closest estimates shall be considered the liquidation value. The resolution professional shall provide the liquidation value to the committee in electronic form.
Information memorandum
1. The interim resolution professional or the resolution professional, as the case maybe, shall submit an information memorandum in electronic form to each member of the committee and any potential resolution applicant before its first meeting; and matters listed in paragraphs (j) to (l) of sub-regulation (2), within fourteen days of the first meeting.
2. The information memorandum shall contain the following details of the corporate debtor-
a. assets and liabilities, as on the insolvency commencement date, classified into appropriate categories for easy identification, with estimated values assigned to each category;
b. the latest annual financial statements;
c. audited financial statements of the corporate debtor for the last two financial years and provisional financial statements for the current financial year made up to a date not earlier than fourteen days from the date of the application;
d. a list of creditors containing the names of creditors, the amounts claimed by them, the amount of their claims admitted and the security interest, if any, in respect of such claims;
e. particulars of a debt due from or to the corporate debtor with respect to related party’s details of guarantees that have been given in relation to the debts of the corporate debtor by other persons,specifying which of the guarantors is a related party;
f. the names and addresses of the members or partners holding at least one per cents take in the corporate debtor along with the size of stake;
g. details of all material litigation and an ongoing investigation or proceeding initiated by Government and statutory authorities;
h. the number of workers and employees and liabilities of the corporate debtor towards them;
i. the liquidation value;
j. the liquidation value due to operational creditors; and
k. other information, which the resolution professional deems relevant to the committee.
3. A member of the committee may request the resolution professional for further information of the nature described in this Regulation and the resolution professional shall provide such information to all members within reasonable time if such information has a bearing on the resolution plan.
4. The interim resolution professional or the resolution professional, as the case maybe, shall share the information memorandum after receiving an undertaking from a member of the committee or a potential resolution applicant to the effect that such member or resolution applicant shall maintain confidentiality of the information and shall not use such information to cause an undue gain or undue loss to itself or any other person and comply with the requirements under section 29(2).
Resolution plan
A resolution plan may provide for the measures required for implementing it, including but not limited to the following-
a. transfer of all or part of the assets of the corporate debtor to one or more persons;
b. sale of all or part of the assets whether subject to any security interest or not;
c. the substantial acquisition of shares of the corporate debtor, or the merger or consolidation of the corporate debtor with one or more persons;
d. satisfaction or modification of any security interest;
e. curing or waiving of any breach of the terms of any debt due from the corporate debtor;
f. reduction in the amount payable to the creditors;
g. extension of a maturity date or a change in interest rate or other terms of a debt due from the corporate debtor;
h. amendment of the constitutional documents of the corporate debtor;
i. issuance of securities of the corporate debtor, for cash, property, securities, or in exchange for claims or interests, or other appropriate purpose; and
j. obtaining necessary approvals from the Central and State Governments and other authorities
Mandatory contents of resolution plan
1. A resolution plan shall identify specific sources of funds that will be used to pay the insolvency resolution process costs and provide that the insolvency resolution process costs will be paid in priority to any other creditor.
2. Liquidation value due to operational creditors and provide for such payment in priority to any financial creditor which shall in any event be made before the expiry of thirty days after the approval of a resolution plan by the Adjudicating Authority; and liquidation value due to dissenting financial creditors and provide that such payment is made before any recoveries are made by the financial creditors who voted in favour of the resolution plan. A resolution plan shall provide the term of the plan and its implementation schedule. The management and control of the business of the corporate debtor during its term and adequate means for supervising its implementation.
Approval of resolution plan
1. A resolution applicant shall endeavor to submit a resolution plan prepared in accordance with the Code and these Regulations to the resolution professional,thirty days before expiry of the maximum period permitted under section 12 for the completion of the corporate insolvency resolution process.
2. The resolution professional shall present all resolution plans that meet the requirements of the Code and these Regulations to the committee for its consideration. The committee may approve any resolution plan with such modifications as it deems fit.
3. The resolution professional shall submit the resolution plan approved by the committee to the Adjudicating Authority with the certification that the contents of the resolution plan meet all the requirements of the Code and the Regulations and the resolution plan has been approved by the committee.
4. The resolution professional shall forthwith send a copy of the order of the Adjudicating Authority approving or rejecting a resolution plan to the participants and the resolution applicant. A provision in a resolution plan which would otherwise require the consent of the members or partners of the corporate debtor, as the case may be, under the terms of the constitutional documents of the corporate debtor, shareholders’ agreement, joint venture agreement or other document of a similar nature, shall take effect notwithstanding that such consent has not been obtained.
5. No proceedings shall be initiated against the interim resolution professional or the resolution professional, as the case may be, for any actions of the corporate debtor, prior to the insolvency commencement date. A person in charge of the management or control of the business and operations of the corporate debtor after a resolution plan is approved by the Adjudicating Authority, may make an application to the Adjudicating Authority for an order seeking the assistance of the local district administration in implementing the terms of resolution plan.
Extension of the corporate insolvency resolution process period.
The committee may instruct the resolution professional to make an application to the Adjudicating Authority under section 12 to extend the insolvency resolution process period. The resolution professional shall, on receiving an instruction from the committee under this Regulation, make an application to the Adjudicating Authority for such extension.
Conclusion
After going through the above-mentioned points, we can say that the law has given every kind of possible solution to each person concerned. If corporate debtors want to clean its debt and start the business fresh in time bound manner it can go for insolvency resolution plan, on the other hand if corporate creditors want to clean its financial statements it can go for insolvency resolution plan.
For Corporate Insolvency Resolution Plan and any clarification and consultation please email to Mr. Hemant Paliwal, Registered Insolvency Professional with IBBI at: [email protected]
Rakesh Kumar
HPACS Team