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IBC 2016: Application to Adjudicating Authority Rules, 2020

Changes introduced for Insolvency professionals who file applications to the Adjudicating Authority

By Muds ManagementPublished 3 years ago 4 min read
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The pandemic caused by the COVID-19 had put many economies on halt for most part of 2020 and even 2021. The Central Government was ready with a series of relief measures in various sectors of the Indian Market. In case of the insolvency proceedings, it stopped the initiation of procedures for at least a year. This was done to ensure that small businesses remain unaffected by the aftereffects of restrictions being imposed due to COVID-19 pandemic.

Protecting small businesses was the main agenda behind the government stopping the insolvency procedures. However, because IBC and the related procedures are a law, the government had to notify a lot of changes to various norms officially. These notifications and circulars were related to all the necessary changes related to the IBC proceedings. In this blog, we will learn about the changes introduced for Insolvency professionals who file applications to the Adjudicating Authority. We will also discuss in brief the key changes brought in the IBC itself.

Key Rules for Application to Adjudicating Authority

The application Form 1 (for Financial Creditors under section 7 of Code), Form 5 (for Operational Creditors under section 9), and Form 6 (for Debtors under section 10) have been amended. Now these forms feature a declaration from the applicant stating “the applicant has submitted a replica of application through registered post/speed-post/electronic post/by hand to the registered office of the company debtor and also submitted a copy to the IBBI.”

For all applications under sections 7, 9 and 10, the applicant should submit a replica of the application to the registered office of the debtor and to the IBBI. It can be submitted by registered mail/speed post or by hand/email, before filing a copy with the Adjudicating Authority.

The instructions are amended to give proofs of serving a copy of the form to the company debtor, and the IBBI. The necessary proof should be attached to the application.

Form 2 (concerning written communication by proposed IRP) has been amended to feature information of existing assignments of proposed IRP, RP, Liquidator (Includes Voluntary Liquidation), AR, non-public Guarantor, and Bankruptcy Trustee. This information must be provided on the Consent Form 2.

The need of attaching ANNEXURE- III to make Form 5 (application by Operational Creditors) has been removed. The annexure stated that a copy of the relevant accounts from the banks/financial institutions who maintain them for the operational creditor should confirm that there's no payment of the relevant unpaid operational debt by the operational debtor.

A replacement Form 5A has been inserted which should be filled by the Bank/Financial Institution on its letterhead. It should be attached with the Adjudicating application under section 9 in Form 5 certifying details of all credits received from the Corporate Debtor’s account in the previous 3 years.

IBC Suspension Extended till March 2021

Another notification was released by Ministry of Corporate Affairs (MCA) on 24th September 2020 which extended the suspension of filing of any new insolvency application need section 7, 9 & 10 of IBC by 3 more months. Earlier the suspension was notified with effect from 25 March 2020 for all defaults committed for debt amount from 25 March 2020 till 25 September 2020.

In the flurry of new regulations, IBBI invited public opinion on the newly proposed regulation whereas NRRA (Non-Readily Realisable Assets) will be assigned as per the following two points:-

Based on Absolute Assignment: Under this feature, the assignment of NRRAs is going to be absolute. This means the assignees (party to whom the assets are assigned by the liquidator) would have the right over the assets and any action thereafter. The assignment will transfer all the legal rights, remedies, and power to bring settlement without the interference of the assignor.

Assignment with Recompensation Facility: This facility allows the liquidator to assign the rights to assets at an initial price. Any subsequent net recovery would be shared between the assignee and assignor as per the terms of the assignment.

Assignments Are Subjects to Following Checks:

1. Assignor of the NRRA must not be disqualified under Section 29A of the code.

2. The Liquidator should consult the Stakeholders Consultation Committee (SCC) before assignment. However, their advice will not be binding on the regulator as per regulation 31A. Also, he must record the explanations in writing if he has a contrary view to SCC on the said matter.

3. Liquidator must also follow all general principles and act in the best interest and maximization of resources through the assignment as per Section 29A.

Further IBBI has mentioned in its paper on best International practices and stated that law doesn’t prohibit such assignment as per various rulings of the honorable Supreme Court. These rulings have been related to other statutes and interpretations of Section 5 (7) of the Code. However, IBBI still wanted to explicitly give an equivalent by incorporating new Regulation 30A and 38A. IBBI also feels that post amendment, the potential for a new market is also on the cards for NRRA buyers.

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