New Delhi According to a resolution by the Insolvency and Bankruptcy Board of India (IBBI), corporate rescue plans put together by insolvency resolution professionals will have to specify how past transactions of suspicious nature will be carried forward by the suspended management of the insolvent company.
The move is part of the insolvency rules maker’s proposals to make restructuring of insolvent businesses more efficient.
According to a consultation paper issued by IBBI, it seeks to maximize assets available for restructuring and clarity on how suspicious transactions in the past by the defaulting company, called avoidance transactions, will be dealt with after the revival of the insolvent company. expected to bring.
In addition, acting on these past transactions that adversely affect the value of assets available for corporate restructuring may discourage market players from entering into deals with an insolvent debtor outside of the bankruptcy resolution process.
The resolution professionals appointed by the lenders to prepare the turnaround plan may request the Tribunal to quash a low-value transaction of the insolvent company executed within a specified period before the insolvency.
According to IBBI, 708 application value in respect of avoidance transactions 2 trillion have been filed in the Tribunal till 28 February 2022. Of these, only a few applications have been disposed of by the Tribunal.
Preetika Kumar, founder of the law firm Cornelia Chambers, explained that after the approval of the resolution plan, a resolution plan will be provided for the manner of proceeding with the proceedings in respect of avoidance transactions or fraud or wrongful trading.
IBBI also suggested that operational creditors such as goods and services suppliers may use Goods and Services Tax (GST) forms filed with tax authorities and for shipment of goods (e-way bills) by their customers to establish default in payments. Can use an electronic permit to go. , One of the major reasons for delay in admission to tribunals in bankruptcy cases is the delay in establishing payment default.
The regulator said there is a time limit of 14 days for admitting or dismissing a bankruptcy petition, but the delay is due to difficulty in ascertaining the existence of debt and default. Using GST documents can help in this context. IBBI said the average time taken to admit bankruptcy cases in tribunals initiated by operational creditors was 650 days in FY22.
“Through this proposed amendment, there will be increased efficiency and clarity for the resolution professional, which will make the insolvency process more effective and efficient, minimizing delays during the process and maximizing recovery value,” said Preetika.
The regulator also suggested that an obligation should be imposed on the lenders to timely provide all relevant information with them with respect to the assets of the defaulting company to the resolution professional.