IBBI Proposes Changes To Boost Transparency, Plug Gaps In Insolvency Process

(MENAFN- KNN India) New Delhi, Feb 21 (KNN) The Insolvency and Bankruptcy Board of India (IBBI) has proposed a series of amendments to insolvency regulations aimed at enhancing transparency in resolution plan approvals, addressing gaps in insolvency cost disclosures, and streamlining the treatment of delayed claims.

In a discussion paper, the regulator emphasised that while the commercial wisdom of the Committee of Creditors (CoC) remains paramount, certain evaluation parameters should be formally recorded in CoC meetings during the approval of resolution plans.

Structured Evaluation of Resolution Plans
The IBBI suggested that factors such as expected recovery vis-à-vis liquidation value, fair market value, and the credibility and track record of resolution applicants should be explicitly documented in CoC proceedings.

The enhanced documentation framework is expected to strengthen transparency in decision-making and provide evidentiary backing in case of judicial scrutiny.

“The absence of consistent documentation standards and structured disclosures has often led to avoidable disputes and delays. When processes are not clearly recorded or communicated, stakeholders tend to challenge outcomes, and that uncertainty impacts timelines and value,” said Vishwas Panjiar, Founder of SVAS Business Advisors.

Greater Disclosure of Insolvency Costs
Recognising operational challenges faced by Interim Resolution Professionals (IRPs) in the early phase of insolvency, particularly before the constitution of the CoC, the paper clarified that essential costs incurred to keep a company as a going concern must be fully disclosed at the first CoC meeting.

Additionally, IRPs would be required to submit a detailed 'Going Concern Assessment Report' at the inaugural CoC meeting. The report would include estimated income and expenditure statements, projected cash flows, working capital requirements and assessment of potential value erosion if operations are discontinued.

This measure seeks to ensure informed decision-making at an early stage of the Corporate Insolvency Resolution Process (CIRP).

Treatment of Delayed Claims
The discussion paper also addressed inconsistencies in handling delayed claims. It proposed that the authority to adjudicate delayed claims should rest exclusively with the National Company Law Tribunal (NCLT).

In cases where Resolution Professionals (RPs) find delayed claims acceptable, these must be placed before the Adjudicating Authority within one week of receipt for condonation of delay and adjudication. The claims would then be placed before the CoC solely for recommendations regarding their treatment in the resolution plan.

This clarification aims to prevent procedural bottlenecks where acceptable delayed claims were not being escalated due to lack of CoC recommendations.

Safeguards Against Conflicts of Interest
To prevent conflicts of interest and promoter influence, especially in cases where financial creditors are absent or related parties, the IBBI proposed excluding related-party operational creditors (RPOCs) from participating in the CoC, even if they fall within the top 18 operational creditors by value.

“The proposed amendment seeks to ensure that only unrelated operational creditors participate in the decision-making process in cases where the CoC is constituted exclusively of operational creditors, thereby preserving independence, neutrality, and creditor primacy under the IBC,” the paper stated.

The proposed changes are aimed at strengthening governance under the Insolvency and Bankruptcy Code (IBC), reducing litigation risks, and improving confidence among stakeholders in India's insolvency resolution framework.

(KNN Bureau)

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