The long time discussed subject of credibility of the resolution process under the Insolvency and Bankruptcy Code,2016, which is dependent on the sustainability of the Resolution Plan and credibility of the Resolution Applicant, is now settled by the Insolvency and Bankruptcy Board of India(IBBI) by introducing amendment regulations to the Corporate Insolvency Resolution process on 7 November 2017 and subsequent Ordinance passed by the Central Government on 23 November 2017 on the subject.
A key objective of the Insolvency and Bankruptcy Code, 2016 is insolvency resolution of corporate persons in a time bound manner for maximization of value of their assets. This objective would be achieved only if a resolution process ends up with a credible resolution plan that maximizes the value of assets of the corporate debtor, that is, the plan has been drawn up realistically and would be implemented successfully. Though there is no restriction on as to who can submit a resolution plan, it should come from any person, who can really rescue the insolvent business and the Committee of Creditors is expected to approve the best of them.
However, it was observed that the persons who themselves were responsible for the current debt owed situation of a corporate leading to insolvency proceedings, were submitting their resolution plans to the Insolvency Professional which if approved, may lead to shift the control of the Company again in the hands of those people who dragged the Company in such a situation.
Here from, the question raised about the credit worthiness of the promoters/persons who are submitting the resolution plan to the Insolvency Professional and credibility of their resolution plan.
According to the amendments, especially newly inserted Sec. 29A in the Code vide Insolvency and Bankruptcy Code (Amendment) Ordinance, 2017, a person (including promoter) cannot submit Resolution Plan if such person or any other person acting jointly with such person is:
- Adjudged Insolvent
- Willful Defaulter as per RBI Guidelines
- Having NPA Account with one year or more
- Convicted for offence with imprisonment for 2 years or more
- Disqualified to act as Director pursuant to the Companies Act, 2013
- Prohibited by SEBI from trading /accessing Securities Market
- Indulged in a Preferential /Extortionate Credit / Undervalued/ Fraudulent Transaction in respect of which Adjudicating Authority has made an Order under the Code
- Executed enforceable guarantee in favour of a creditor of the Company.
- Subject to any disability corresponding to above clauses (a) to (h), under any foreign law.
To effectuate the spirit of Sec. 29A, it has now been mandated for a person submitting the Resolution Plan to include all the above details/declarations in the resolution plan itself along with his identity so that the Committee of Creditors can carry out due diligence of every resolution plan to satisfy itself that (a) the plan is viable, and (b) the persons who have submitted the plan and who would implement the plan are credible, to avoid the plans which may lead to liquidation, post resolution, and to select the most suitable plan under the circumstances.
In view of substituted subsection 4 of Section 30 of the Code by virtue of the amendment Ordinance, duty has been cast on the Committee of Creditors to ascertain feasibility and viability of the Resolution Plan before approving the same. Further, in the context of this subsection, the Ordinance applies with retrospective effect which means, all the pending cases of disqualified persons where their resolution plan/s have been filed but not approved by the Committee of Creditors would be subject to rejection if not fitted within the above mentioned specified criteria enlisted for the resolution applicant and the contents of the Resolution Plan. Accordingly, in all the pending cases, the resolution professional shall have to call for new resolution plans if there are no other eligible plans.
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