Resolution Plan – Corporate Restructuring, Insolvency, Liquidation & Winding-Up Important Questions
“Section 29A was introduced in the Insolvency and Bankruptcy Code, 2016 to prevent certain persons from applying as resolution applicant.” Comment
- The Insolvency and Bankruptcy Code, 2016 was created to benefit the Financial and Operational Creditors, through the insolvency resolution process.
- However, it was observed that existing promoters of the Corporate Debtor were directly or indirectly acquiring stake in their own assets through the resolution plan, at a big discount.
- Hence, through the resolution process, the existing promoters were regaining control over their assets (directly or indirectly) after a huge hair-cut (discount) from lenders. In other words, re-purchase the same assets at a much lower cost and getting a back-door entry into their company.
- To plug this loophole, the IBC was amended through the ordinance of the President of India.
- The amendment inserted section 29A, which provides for persons ineligible to be a Resolution Applicant. The newly added section 29A declares certain persons ineligible to be a resolution applicant and prohibits such persons from submitting a resolution plan.
As per Section 29A, following persons are not eligible to submit a resolution plan:
(a) applicant is an undischarged insolvent,
(b) wilful defaulters (as defined by RBI and Banking Regulation Act, 1949),
(c) persons whose accounts are classified as NPA for one year or more and are unable to settle their overdue amount (incl. interest), at the time of submission of the resolution plan,
(d) persons convicted for any offence punishable with imprisonment for two years or more,
(e) persons disqualified to act as director under the Companies Act, 2013,
(f) persons prohibited by SEBI, from trading in securities or accessing the securities market,
(g) persons connected with promoters, management, guarantors of such corporate debtor and any other related party (holding, subsidiary, associate, JV etc.),
(h) persons who have executed any guarantee for the existing corporate debtor,
(i) persons disqualified by any law of other country, for the conditions mentioned in (a) to (h),
(j) persons connected with or related party to the above mentioned in (a) to (i).
“The Resolution Professional is responsible for inviting resolution plans from eligible resolution applicants.” Comment
- A resolution plan means a plan proposed by any person for insolvency resolution of the corporate debtor as a going concern.
- A resolution applicant means a person, who individually or jointly with any other person, submits a resolution plan to the resolution professional.
- The Resolution Professional shall invite prospective resolution applicants, after approval from the Committee of Creditors. The resolution applicants shall be invited on the basis of the complexity and scale of operations of the business of the Corporate Debtor and such other conditions as may be specified by the IBBI.
- The Resolution Professional shall prepare an information memorandum which contains all relevant information required by the Resolution Applicant to make the resolution plan for the Corporate Debtor. Such information includes information relating to the financial position of the corporate debtor, all information related to disputes by or against the corporate debtor as well as any other matter pertaining to the corporate debtor as may be specified.
- The resolution professional provides to the resolution applicant access to all relevant information in physical and electronic form.
- Expression of Interest (Eol) is a document describing requirements or specifications, seeking information from potential investors/bidders. The bidders shall to meet such requirements.
- EOIs are invited from potential investors or consortium that meet the specified eligibility criteria in terms of financial & technical capabilities to submit resolution plans for the Corporate Debtor.
- The Eol is issued by the Resolution Professional on behalf of the Committee of Creditors in the form of a public advertisement. Invitation prescribes the last date for receipt of Eol.
- Subsequently, the Committee of Creditors shall discuss and finalize the best resolution plan that shall lead to a favourable outcome for all the stakeholders of the Corporate Debtor.
- The detailed invitation shall specify the criteria for prospective resolution applicants, state the ineligibility norms under section 29A of the IBC, 2016.
- A prospective resolution applicant, who meets the requirement criteria may submit the Eol within the time specified in the invitation.
- An expression of interest shall be unconditional and be accompanied by an undertaking by the prospective resolution applicant that it meets all the criteria and not disqualified u/s 29A.
- Resolution Professional shall conduct due diligence while short-listing potential resolution applicants, based on the declarations submitted by them and ask for additional information.
- The Resolution Professional shall submit each resolution plan to the Committee of Creditors, who shall approve a resolution plan by a vote of not less than 66% majority, after considering feasibility and viability of the resolution plan.