The proposals are made by a panel set up by the insolvency watchdog to suggest regulations aligning with the amended Insolvency and Bankruptcy Code (IBC).
The safeguards are warranted as, unlike in the extant system, the management of the bankrupt company will continue to run the affairs under the supervision of a resolution professional in the CIIRP.
Under the usual corporate insolvency resolution process, the management and the board of directors of a stressed firm immediately loses control upon the admission of the insolvency case and the insolvency professional gets to run the show under the supervision of the committee of creditors.
“The corporate debtor (under the CIIRP) shall manage the affairs of the corporate debtor in a manner not prejudicial to the creditors of the corporate debtor or in a fraudulent manner,” the panel’s report said.
The corporate debtor will have to provide details having material impact on the business of the corporate debtor to the resolution professional. These include details of legal proceedings and key contracts executed; and any other information required by the resolution professional or the committee of creditors.
The resolution professional will have powers to call for information related to operations of the corporate debtor, including payments made, from the management. He can visit premises of the corporate debtor and inspect assets.He can also seek information of compliances applicable to the corporate debtor and its status, and any other details for ascertaining the conduct of the bankrupt firm during the CIIRP.
“The resolution professional will attend meetings of members, board of directors and committee of directors, or partners of the corporate debtor, as the case may be, and shall have the right to reject any resolutions passed in these meetings, with reasons to be recorded in writing,” the report said.
Resolution plans
The resolution professional will publish brief particulars of the invitation for expression of interest within 50 days of the CIIRP commencement date.
Prospective resolution applicants will have a minimum of 15 days to submit their plans. The committee of creditors will use a “challenge mechanism”, at any stage during the consideration of resolution plans.
Separately, the Insolvency and Bankruptcy Board of India has issued a circular, stating that standards made by the International Valuation Standards Council will be adopted while firming up valuations of all stressed companies under the insolvency law.
The valuation of the stressed firm serves as a critical input for evaluation of resolution plans and facilitates informed decision-making by stakeholders, including the committee of creditors, resolution applicants, and adjudicating authorities.
“Therefore, transparent, objective, and credible valuation of assets of the corporate debtor is fundamental to the effective functioning of the insolvency framework,” it added.