Insolvency code: Due diligence framework tightened for resolution applicants

The Insolvency and Bankruptcy Board of India (IBBI) — the insolvency regulator — has tightened the due diligence framework on resolution applicants, including promoters.

Corporate resolution applicants including promoters will now be put through a stringent test as regards their credibility and creditworthiness before a resolution plan is approved by the committee of creditors.

This is going by the latest changes effected by IBBI in the regulations governing the corporate insolvency resolution process.

Further, the IBBI has also imposed greater responsibility on the resolution professional and Committee of Creditors in discharging their duties.

For this purpose, the IBBI has tweaked its regulations on corporate insolvency resolution process so as to ensure that it results in a credible and viable resolution plan.

Prior to approval of a resolution plan, the Committee of Creditors has now been empowered to take into account the antecedents, credit worthiness and credibility of a resolution applicant, including promoters, according to an official release.

An amendment to this effect has been made to the IBBI (Insolvency Resolution Process for Corporate Persons) Resolution Process, 2016 (CIRP Regulations).

The revised regulations make it incumbent upon the Resolution Professional to ensure that the resolution plan presented to the Committee of Creditors contains relevant details to assess the credibility of the resolution applicants, the release said.

The details to be provided would include information with respect to the Resolution Applicant in terms of convictions, disqualifications, criminal proceedings, categorisation as willful defaulter as per Reserve Bank of India guidelines, debarment imposed by SEBI, if any, and transaction, if any, with the corporate debtor in the last two years.

The resolution professional has to also submit details in respect of transactions observed or determined, if any, covered under Section 43 (Preferential Transactions); Section 45 (Undervalued Transactions); Section 50 (Extortionate Credit Transactions); Section 66 (Fraudulent Transactions) under Insolvency and Bankruptcy Code, 2016.