IBC: Insolvency Regulations Amended - Late Bidders To Be Shown The Door?
India’s insolvency regime is less than a year old and the rules of the game have already changed thrice. The last was via an ordinance in June amending the Insolvency and Bankruptcy Code, 2016, which has now prompted a change in regulations as well. The amended regulations have focused on streamlining the insolvency process and making it less prone to litigation. Have they succeeded?
Sapan Gupta, a bankruptcy law partner at Shardul Amarchand Mangaldas, shared his views on BloombergQuint’s weekly show- Insolvency Diaries
Strict Timelines: No Late Bids?
In amending the regulations the Insolvency and Bankruptcy Board of India has prescribed a model timeline for different steps to be undertaken within the resolution deadline. The IBC permits a maximum of 180 days, extendable to 270 days, for resolution of a distressed company.
The model timeline, for some important steps, looks something like this:
Would the model timeline ensure sanctity of the insolvency process and would any deviation from it become the grounds for litigation?
Earlier, the courts have said that you can submit your claims as long as the insolvency process is on. Now, they have said within 14-90 days, the resolution professional may accept the claims. They have still left the discretion with the resolution professional that he can go beyond 90 days, but the guidelines are that he should try and complete that in 90 days. 90 days is also the timeline for accepting the expression of interest which means that they are trying to give a clear idea to the resolution applicant as to what are the claims that he should incorporate when he is preparing the resolution plan. It will also allow resolution professionals to not chase the creditors. We have seen in number of cases that operational creditors and in some cases the claims from the government were not submitted in time which lead to delays in aggregating the total claim. In that respect, it is a very good move that some guidance has been given.
“Our reading is that the legislature and the Insolvency and Bankruptcy Board of India (IBBI) has used the word ‘may’ which leaves a discretion with the resolution professional but in practice and given the intent of the amendment, we believe that the resolution professional will have a power to reject the claims if they are late.”
And that will hold up in court?
Some of these are strict timelines. Thankfully, it says model timeline in the time chart. The ones which are in the body of the regulation or the ordinance will be compulsory. But others which are in the table of model timelines, the resolution professional will have some discretion to change those.
Some are realistic, but others don’t take into account the size of the corporate debtor. Sometimes the number of claims could be huge and 90 days may not be sufficient for the resolution professional to verify and decide. Also, submission of the plan by 135th day can be very tight for large cases.
Another provision is within 75 days, resolution professional has to decide on any avoidance transactions. When a resolution professional takes control, the first 30-35 days are gone in admitting the claims, constituting of the creditors’ committee and confirmation of an interim resolution professional. And just giving 40-45 days to do analysis of avoidance transactions- which are generally very complicated - may require more time. It is good to have a timeline, but resolution professional should have more discretion to address issues which are very particular to every account.
One of most awaited changes to the regulations was that late bids won’t be accepted, and late bidders won’t be entertained. Did this need a categorical mention or is it implicit now that we have strict timelines for all the steps in the insolvency process?
The plans have to be submitted electronically and in writing. At one place in the regulations, it says plans have to be submitted as per dates set by the resolution professional. If the plan is submitted after the date which is set by the resolution professional, it can be rejected. So, late bids can be rejected by the resolution professional which will help in resolving these cases in a time bound manner and reduce litigation. It’s a notice to people who are interested in distressed assets to abide by the timeline. It also takes care of the fact that someone is not bidding after they’ve seen the other bids. If a late bidder litigates, resolution professionals would be able to rely on these regulations to make his case.
In some cases, it was argued it’s the responsibility of the creditors’ committee and resolution professional to maximise the value of assets and so, a late bid should be entertained as long as it’s within the 180-day period; there was no regulatory support against this argument. So, it is a welcome change.
Watch the full interview below.