Insolvency regulator IBBI has taken another significant step to enhance transparency and accountability in corporate insolvency proceedings, making it mandatory for the resolution professional (RP) to submit the details of his opinion and determination of avoidance transactions undertaken by a company facing insolvency process.
A separate form has now been prescribed by the Insolvency and Bankruptcy Board of India for this purpose and this has to be filed electronically with the regulator. This form (CIRP 8) needs to be filed in respect of every Corporate Insolvency Resolution Process (CIRP) ongoing or commencing on or after July 14, IBBI has said in a circular.
This new regime is expected to ensure better monitoring of the work of the RP, who is duty-bound to find out if a corporate debtor has been subject to avoidance transactions, namely, preferential transactions, undervalued transactions, extortionate credit transactions, fraudulent trading and wrongful trading, and file applications with the adjudicating authority seeking appropriate relief.
Such a practice not only claws back the value lost in such transactions, increasing the possibility of reorganisation of the corporate debtor through a resolution plan but also disincentivises such transactions, preventing stress to the corporate debtor.
Other measures
It is often seen that a corporate debtor may have changed its name or registered office address prior to commencement of insolvency. The stakeholders may find it difficult to relate to the new name of registered office address and consequently fail to participate in the CIRP. The IBBI has, therefore, come up with an amendment that requires an insolvency professional conducting the CIRP to disclose all formal names and register office addresses so changed in the two years preceding the commencement of insolvency, along with current name and registered office address of the corporate debtor, in all its communications and records.
IBBI moves the governance needle on IPAs
IBBI has also allowed an interim resolution professional (IRP) or a resolution professional (RP) to appoint any professional, including registered valuers, to assist him in discharge of his duties in conduct of the CIRP. The latest amendment provides that the IRP/RP may appoint a professional, other than registered valuers, if he is of the opinion that the services of such professional are required and such services are not available with the corporate debtor. Such appointments would have to be made on arm’s length basis following an objective and transparent process. The invoice for fee would have to be raised in the name of the professional and be paid into his bank account, the IBBI has stipulated.