IBBI Mandates Simultaneous Voting On All Resolution Plans

Creditors will now be required to vote on all eligible resolution plans submitted under the insolvency process simultaneously as the bankruptcy regulator has changed the procedure to increase transparency. The regulator has also amended the regulations governing representation of certain class of creditors in the CoC meetings. The amendments becomes effective from Aug. 7.

Simultaneous Voting By CoC

So far, creditors’ committee isn’t required to vote on all resolution plans at the same time. They’ve to identify the best resolution plan and approve it with or without modifications. Now, CoCs will be required to vote on all feasible and viable resolution plans simultaneously.

Simultaneous voting will put all the resolution applicants on the same platform, Veena Sivaramakrishnan, partner at Shardul Amarchand Mangaldas & Co., told BloombergQuint. The IBBI seems to have recognised the principle of comparative and competitive commercial wisdom of the creditors in ensuring that there can be parallel voting, she said.

‘This will increase transparency and, hopefully, reduce informal negotiations,’ Sivaramakrishnan added.

The amended regulations provide a lengthier voting procedure:

• A resolution professional must submit all compliant resolution plans to the CoC.
• The CoC must then evaluate such plans as per an evaluation matrix and record its view on their feasibility and viability.
• It must vote on all such resolution plans simultaneously.
• In case of a single resolution plan, it will be considered as “approved” if it gets requisite votes.
• For two or more resolution plans, the plan which gets the highest as well as requisite number of votes will be considered approved after a simultaneous voting.
• If two or more plans get equal and requisite votes, the CoC can approve any of the plans as per a pre-determined tie-breaker formula.
• If no plan gets the requisite numbers, the CoC should again vote on the plan which received highest votes.

In addition to the process memorandum, the tie-breaker formula would see innovative criteria and will be the key factor in cases where there is significant interest, Sivaramakrishnan said. ‘This could also lead to increase in recovery for the creditors and ultimately have the intended result of value maximisation,’ she explained.

Creditors Classification

The regulator has also amended the regulations governing representation of certain class of creditors in the CoC meetings. Creditors like allottees in a real estate project etc. are allowed to vote through an authorised representative, who acts in accordance with their instructions.

As per the amendment, an interim resolution professional must go through the corporate debtor’s books of accounts to classify the creditors into different classes. Based on this classification, he must identify three insolvency professionals from the state or union territory which has the highest number of creditors belonging to a particular class. The creditors can then designate any one of the professionals as their authorised representative in the CoC meetings.

Ramakant Rai, partner at law firm Trilegal, explained the amendment is relevant for class of creditors like real estate allottees, deposit or debenture holders who are numerous and can reside throughout the country. As there can be challenges in communication and co-ordination between the authorised representative and such creditors, the IBBI has amended the regulations to address the logistical issues. This will speed up the communication process and ensure speedy decision making, he said.