The Insolvency and Bankruptcy Board of India (IBBI) has recently amended the IBBI (Corporate Insolvency Resolution Process) (second amendment) Regulations, 2021, which are welcome steps toward greater transparency and accountability in the conduct of resolution processes under the Insolvency and Bankruptcy Code (IBC), 2016.
An insolvency professional (IP) is appointed once the CIRP is launched. To assume control of the corporate debtor, the IP takes the place of the board of directors and management. The code outlines the IP's numerous responsibilities with the goal of safeguarding the debtor's value. The CIRP's goal is to encourage entrepreneurship and revitalise an asset while also increasing its value. This is accomplished when a possible Resolution Applicant (RA) develops a plan that is then submitted to a vote in front of the Committee of Creditors (CoC) and approved by the adjudicating body, i.e. the National Company Law Tribunal (NCLT). The entire procedure is time-limited, and it should be finished within 180 days of admission. The IBC standards also stipulate that resolution processes must be completed within 330 days.
IDENTIFYING PREJUDICIAL/AVOIDANCE TRANSACTIONS
The IP is in charge of forming an opinion (on or before the 75th day) on whether the former board of directors/promoters engaged in any activities (avoidance transactions) that are detrimental to the stakeholders' interests. The IP chooses the transaction auditor based on the opinion formed, who conducts the look-back review for two years or longer, as the case may be. Once found (on or before the 115th day), avoidance transactions are classified as preferential, undervalued, fraudulent, or extortionate, according to the code. The report, in the form of a petition, must be filed with the NCLT (on or before the 135th day).
As a result, the tribunal decides on the petition in order to mitigate the impact of such transactions by either reversing the transaction or compensating the stakeholders for the losses suffered by the parties concerned.
The IBBI has used a variety of strategies to keep the resolution process on track and efficient. One such way is the establishment of several CIRP forms, each of which must be filed by the IP within the specified timeframes. In the event that the forms are not filed on time, a modest penalty is levied.
POTENTIAL CHALLENGES
It is important to note that the IP plays an important function, but only for a short time. The IP assumes the role of management and makes choices to protect the corporate debtor's assets. However, evaluating the transactions may cause the IP to deviate from the process. After the CIRP's 100th day, the IP would be entrusted with locating a true potential RA, conducting the appropriate valuation, evaluating the plan, convening several CoC meetings, and ensuring approval.
When responsibilities are split effectively, a process is effective. However, if the IP is assigned too many jobs and responsibilities, he or she will become a "master of none," which is not ideal given that the IP's job is to ensure that the process is completed on time and effectively.
As a result, having the IP examine the depth of avoidance transactions while in the driver's seat is a smart approach. However, it may be advantageous to guarantee that the IP's assessment is based on and subject to the facts supplied and the transaction auditor's view.
In conclusion, the introduction of such measures certainly brings in more accountability and places the IP at the fulcrum of the resolution process. This will ensure that the process is conducted impartially and smoothly with a specific focus on avoidance transactions.
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