Resolution Delayed Is...

• Published date: 07 July 2022
• Subject Matter: Corporate/Commercial Law, Insolvency/Bankruptcy/Re-structuring, Corporate and Company Law, Insolvency/Bankruptcy
• Law Firm: Phoenix Legal
• Author: Mr Harshvardhan Korada and Vasanth Rajasekaran

How ailing corporate entities can benefit more from the proposed changes in timeline for insolvency resolution

The Insolvency and Bankruptcy Board of India (IBBI) recently published a discussion paper aimed at reducing delays and improving the resolution value under the corporate insolvency resolution process (CIRP) conducted as per the provisions of the Insolvency and Bankruptcy Code, 2016 (IBC).

The IBBI pointed out that currently the timelines under the IBC are seemingly linear, which creates a false impression that activities have to proceed sequentially.

However, from experience and on the basis of a finer analysis, it is understood that the timeline is not linear. Rather, a group of activities under the CIRP can be performed parallelly and grouped together - for instance, claim-related activities, assets-related activities, and activities related to the identification of prospective resolution applicants.

As far as timelines are concerned, the IBBI has proposed several changes. First, at the 'invitation of expression of interest' stage, it was opined that only basic information about the corporate debtor was sufficient. Thus, instead of waiting for the detailed information memorandum, the process of inviting prospective resolution applicants can begin much earlier. The IBBI observed that this would provide enough time to gather a sufficient number of resolution applicants, thereby increasing the likelihood of successful resolution.

Secondly, for the preparation of the information memorandum, a critical document based on which the resolution applicants propose their plans, the IBBI opined that the timeline was insufficient. From experience, it was observed that resolution professionals were often unable to prepare and submit the information memorandum to the committee of creditors on time.

Even if submitted on time, the level of accuracy and completion was unsatisfactory. Hence, it proposed...