NEW DELHI: The Insolvency and Bankruptcy Board of India (IBBI) has issued guidelines to be followed by the Committee of Creditors, which the aims to facilitate timely resolution and maximise the value of the corporate debtor’s assets.
Experts say that the guidelines provide guidance to the CoC to prudently address issues that often lead to delays and disruptions in the corporate insolvency resolution process (CIRP).
Under the Insolvency and Bankruptcy Code (IBC), the commercial wisdom of the CoC drives the procedures to attain the objective of value maximisation of the distressed assets, noted the regulator. The members of the CoC largely represent financial creditors and most of them are under regulatory oversight of the financial sector regulators other than the IBBI.
For a member of the CoC, the guidelines cover the aspects of–objectivity and integrity; independence and impartiality; professional competence and participation; co-operation, supervision and timeliness; confidentiality; meetings; sharing of information; costs; and meeting of the CoC.
One key provision in the guidelines says that representatives with proper authorization should be nominated to expedite decision-making, maintain objectivity in their decisions, and resolve inter-se disputes amongst lenders through dialogue or non-adversarial means. “If followed diligently, they will enhance transparency, bolster confidence in the system, and significantly reduce delays, which is a primary concern under the law,” said Misha, partner, Shardul Amarchand Mangaldas & Co.
Another responsibility that has been assigned to the CoC under these regulations is to recommend inclusion of belated claims which are termed acceptable by the resolution professional (RP), which is likely to reduce litigation.
Another important aspect is that members of the CoC are required to share audit reports, valuation reports etc. generated by them individually with the RP, which will enhance efficiency in the CIRP, say experts.
These self-regulating guidelines will nurture a culture of transparency, independence, impartiality and professionalism amongst the CoC and will help them and the RP in completing the CIRP in a time-bound manner, said Durgesh Khanapurkar, partner at Desai & Diwanji.
As per IBBI analysis, on an average, the CIRP is taking 679 days to conclude as against the standard timeline of 330 days, which erodes asset value. The recovery rate for creditors stands at 49.2% if the CIRP is concluded within 330 days, which reduces to 36%, if the CIRP process concludes between 330-599 days; and beyond 600 days, the recovery rate stands at mere 26.1%.
Experts say that instances of inefficiency and inappropriate conduct by the CoC members has been a concern for a while. At times these behaviours stem from the fact that there is inherent lack of organisational flexibility and/or over-zealous scrutiny of every commercial decision taken by bankers. Hence, members either don’t take timely decisions or if they do, these are not objective commercial decisions, noted Misha.
Creditors, majorly being the financial institutions are expected to run the sick industrial unit with commercial dexterity. The creditors though lack inherent agility but when supplemented with competent authority and professional mandates for sharing and accessing information/active monitoring of meetings etc., then the procedural buds would be nibbed, said Anjali Jain, partner, Areness. “It is noteworthy that all such procedural buds have been effectively taken care of in the guidelines,” she added.
Source: The Financial Express
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