IBBI Discussion Paper Proposes Two-Part Resolution Plan For Swift Takeover Of Stressed Firms

The insolvency regulator has put forth a "two-part resolution plan" to ensure a prompt transition of a distressed company to the winning bidder, maintaining its operational continuity without interruptions or delays. This will safeguard the company against asset devaluation.

According to a discussion paper from the Insolvency and Bankruptcy Board of India (IBBI), the initial segment of the proposed rescue agreement would grant the National Company Law Tribunal (NCLT) the authority to sanction the resolution plan, thereby giving control to the acquirer.

This would enable the ailing firm to swiftly resume or expedite its operations.

The second phase, it suggests, should address the often contentious matter of allocating resolution proceeds among various stakeholders.

Recognising that disputes over distribution often lead to legal disputes and interrupt the resolution process.

The regulator contends that separating these crucial aspects of the rescue plan will prevent further decline of the ailing firm.

Under the existing system, the resolution plan must be approved as a single entity, encompassing all its details.

Consequently, the first part will encompass the resolution amount, the terms of the plan, and its implementation schedule, among other aspects. The second part will delineate how the plan has accommodated the interests of all stakeholders and the payments allocated to them in accordance with their accepted claims.

The IBBI asserts that the new proposal aims to "streamline the resolutions and prevent delay in the implementation of the resolution plan."

The paper, dated 1 November 2023, also recommends making it obligatory for the committee of creditors (CoC), responsible for determining resolution plans for insolvent companies, to convene meetings at least once a month to evaluate progress.

It highlights instances where regular meetings were not held, causing delays in decision-making related to the rescue plans.

Furthermore, it has suggested that dissenting financial creditors should be entitled to a lower claim in the resolution process.