Discussion paper on changes in the corporate insolvency resolution process to reduce delays and improve the resolution value 27th June, 2022
- Change in timelines for activities under CIRP
Regulation 40A of the CIRP Regulations provides the timelines for activities in a CIRP. At present,
timelines are seemingly presented in a linear manner creating a false impression that the activities
are to be performed in a sequential manner. However, on the basis of finer analysis, various activities can be sub-divided into the following broad categories and number of such activities can be done in parallel:
A. Claims related activities (like claim filing and collation, formation of CoC etc.)
B. Assets related activities (like appointment of valuers, getting valuation determined)
C. Activities related to identifying prospective resolution applicants (RAs) (Invitation and submission of EOI, finalization of list of RAs after dealing with objections to preliminary list)
D. Activities related to avoidance transactions (forming opinion, determination and filing of application before AA)
E. Activities requiring information collection (Preparation of IM, Issue of RFRP, IM, receipt and examination of resolution plans)
After analysis of the existing timeline and practices in the market the following changes are proposed.
i) Change to EoI timeline: On analysis, it became apparent that for inviting expression of Interest from the prospective resolution applicants, information memorandum per se is not required as at this stage only basic information of the corporate debtor is required to be given while inviting EOI etc. Information memorandum is required at the time of issue of request for resolution plan. So, activity of invitation of EOI can be started much earlier. If this process of identifying the potential resolution applicants is started earlier, there will be enough time for another iteration of the process if sufficient number of resolution applicants are not identified in the first iteration.
ii) Change to IM timeline: On the other hand, less time is available for preparation of IM, a critical document which is the basis on which resolution applicants propose resolution plans. It is observed that the RPs are not able to prepare and submit the IM to the CoC members within the currently prescribed 54 days from ICD due to reasons such as lack of information, incomplete books of accounts, non-cooperation from promoters. The accuracy and completeness of the information gathered has a bearing on the valuation of the assets of the CD as the valuers require information relating to the invoice value, date of purchase, condition of assets, depreciation value etc. Such information is also required for forming any opinion on avoidance transactions and sharing it with transaction auditor for getting audit report. Hence, it is proposed to increase the timeline for preparation of IM so that sufficient time is available to the RP within the overall timeline.
iii) Change in timeline for avoidance transaction related matters: The present timeline of filing avoidance application is T+135 which coincides the timeline for submission of resolution plan. Amount to be recovered from the avoidance transactions application etc. are also assets of the CD and may fetch value in the resolution plan. It is therefore, proposed to decrease the time for filing of avoidance application to T+130 so that the resolution applicant can be provided with a copy of the same so that these assets are also considered while submitting the resolution plan.
The proposed amendment to CIRP Regulation 40A is given in Annexure 1.
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