NEW DELHI: In a bid to enhance the effectiveness of the insolvency resolution process and address existing inconsistencies, the Insolvency and Bankruptcy Board of India (IBBI) has proposed making it mandatory, the constitution of a monitoring committee for resolutions under Insolvency and Bankruptcy Code (IBC).
According to a discussion paper released on Tuesday, IBBI’s proposal seeks to empower the Committee of Creditors (CoC) to decide on the composition, constitution, and duration of the monitoring committee as part of the resolution plan.
This would ensure comprehensive supervision of the process, including overseeing the implementation, ensuring statutory compliance, and facilitating the smooth transfer of assets and control to the successful resolution applicant.
To promote transparency and accountability, the monitoring committee would be required to submit quarterly progress reports to both the Adjudicating Authority and the IBBI regarding the implementation status of the resolution plan.
Interim board
Historically, approved resolution plans have often included provisions for setting up an interim board to manage the corporate debtor (CD) between the date of NCLT approval and the transfer date, when control is handed over to the resolution applicant.
However, due to the lack of a formal regulatory framework governing such interim mechanisms, the establishment and role of these interim boards were largely based on the terms outlined in individual resolution plans, leading to inconsistencies and enforcement challenges.
The IBBI’s proposal aims to eliminate these inconsistencies by establishing a standardized regulatory framework. As part of the monitoring committee, there would be a balanced representation of stakeholders, including nominees from the CoC and an equal number of nominees from the successful resolution applicant.
The committee would consist of members with a direct stake in the successful implementation of the resolution plan, ensuring that all parties involved have a vested interest in its success.
Will ensure uniform approach
Industry experts note that the lack of statutory guidance in this area has often led to varied interpretations and challenges in enforcement. The proposed norms are expected to address these issues and ensure a more uniform approach to monitoring and implementing resolution plans.
Furthermore, the IBBI has suggested changes to existing regulations to improve clarity in the conduct of insolvency processes and create a more effective redressal and enforcement ecosystem. The proposed amendments also aim to enhance operational efficiency in the authorization for assignment (AFA) process.
Relaxations
Under the proposed changes, the timeline for submitting an application for AFA renewal to the Insolvency Professional Agencies (IPAs) would be extended from the current 45 days before the expiry of the previous AFA to 90 days.
Similarly, the timeline for approval or rejection of an AFA application by the IPA would be relaxed from 15 days to 45 days from the date of receipt of the application.
Industry experts believe that the proposed relaxation of timelines will lead to higher efficiency at the IPA level, providing insolvency professionals with greater flexibility and ensuring the continuity of their AFA, ultimately contributing to a smoother insolvency resolution process.
Through these amendments, the IBBI aims to remove existing gaps, enhance clarity, and provide a more streamlined, effective framework for the implementation of insolvency and bankruptcy processes.
