IBBI strengthens information utility framework to speed up corporate insolvency admissions

Insolvency regulator IBBI has streamlined the role of information utility (IU) so as to address the big pain point of delays in admission process of corporate insolvency petitions before the National Company Law Tribunal (NCLT).

It has amended the IU regulation to introduce a concept of ‘record of default’ which shall be issued by the IU in a new form (Form D) to the financial creditor for authentication of default.

Info of default

Under a newly-instituted mechanism, a creditor is required to file the “information of default” with the IU and obtain a ‘record of default’ from the IU pursuant to the information utility processing and authenticating the said information. This needs to be done before the creditor files the application for corporate insolvency with the NCLT.

It is reckoned that confirmation of debt default (record of default) by IU will help avoid delays before NCLT, which currently takes lot of time for authentication of default.

Raj Bhalla, Partner at law firm M V Kini, said this amendment will attain the objective of enhancing the acceptability and effectiveness of ‘record of default’ and the NCLTs may be able to dispose of the applications early, with this assistance from IU.

An IU is an information network that stores financial data like borrowings, default and security interests among others of firms. In India, National e-Governance Services (NeSL) in mid-2017 became the first IU for bankruptcy cases under the insolvency and bankruptcy code (IBC).

As per IBC, the admission process should ordinarily be completed in 14 days from the date of filing application. However, the reality is completely different with several cases piling up before NCLT waiting for admission, said insolvency law experts.

Information asymmetry

Meanwhile, the Insolvency and Bankruptcy Board of India has taken another separate measure through a circular to address the information asymmetry among creditors. The regulator has now mandated information utility to notify other creditors of the proposed insolvency proceedings against a corporate debtor.

Kumar Saurabh Singh, Partner, Khaitan & Co, said, “Overall, these changes are expected to create better order and reduce delays associated at admission stage in insolvency process and would also lead to more informed decision about lending to delinquent borrowers”.

Amit Jajoo, Partner, IndusLaw, said that mandating information utilities to notify other creditors of the proposed insolvency proceedings against a particular corporate debtor, will hopefully be a useful step in tackling the possibility of multiple insolvency petitions lining up against the same debtors and lessening the burden on NCLTs.

Also, the amendment mandating creditors to file information of default with information utility before filing an application to initiate CIRP will certainly strengthen the role of information utilities and enhance their assistance in insolvency regime, Jajoo said.

“This will hopefully bring some respite in tackling the piling pendency of insolvency cases. This may just be the much needed booster dose for the stakeholder and investor confidence in the insolvency process”, he added.

It maybe recalled that delays in admission of applications in NCLT has been cited as one of the main reasons for delay in the insolvency resolution process in the country. The Standing Committee on Finance too had highlighted in its report that delays in admission of applications in NCLT were causing delays to the IBC process.