Insolvency tweaks: Creditors must share defaulter’s fin info

MUMBAI: The government has announced amendments to the bankruptcy regulations that will speed up the process and reduce disputes between parties during the insolvency proceedings. A major change requires creditors to share all information that they have in respect of the borrower.
Until now, the creditors against an insolvent company would only submit their claims during the proceedings.The valuation of the distressed company turned out to be a voyage of discovery after scrutiny of the books by potential buyers.
Now the amended law requires creditors to share all information they have with respect to assets and liabilities of the corporate debtor. They must share the financial statements and other relevant financial information from their records and available reports to help the resolution professional in the preparation of the information memorandum and relevant extracts from the transaction or forensic audit reports. The Insolvency and Bankruptcy Board of India (IBBI) notified the IBBI (Insolvency Resolution Process for Corporate Persons) (Second Amendment) Regulations, 2016 on June 14.
The absence of full information has in the past delayed the resolution process. In the case of Reliance Infratel’s insolvency, Reliance Jio Infocomm had backed out after it emerged that there was a forensic audit report that was not disclosed. It was after Jio’s resolution plan was approved that some lenders declared the loans fraudulent, which brought to light the existence of a forensic audit.
“The amending regulations notified will help in having better information flow and reducing timelines, improving operational efficiency and clarity on treatment of issues like avoidance transactions in the resolution plan itself besides strengthening grievance redressal mechanism in fair implementation of the code,” UV ARC director Hari Hara Mishra said.
According to Mishra, the information asymmetry has been a drag on the resolution process and the increased disclosures will help all stakeholders including the resolution professional and potential bidders.
Besides disclosures by financial creditors, the amendment provides operational creditors to furnish extracts of forms GSTR-1 & GSTR-3B and e-way bills, wherever applicable, along with the application filed. These documents can be used as evidence of transactions with the corporate debtor, debt and default, easing the process of admission. These documents will also be submitted along with the claims to the resolution professional to help collate information. All the creditors, including those with small claims, will be required to furnish PAN and email ID to ensure smooth correspondence.
The amendment also addresses the issue of treatment of avoidance applications filed with the adjudicating authority after the closure of the corporate insolvency resolution process (CIRP). It provides that the resolution plan shall provide for the manner in which such applications will be pursued after the approval of the resolution plan and the manner of distribution of proceeds.