IBC focuses on fair valuation of assets and timely submission of Resolution Plans
By Megha Mittal(resolution@vinodkothari.com)
The Insolvency And Bankruptcy Board Of India introduced the IBBI (Insolvency Resolution Process for Corporate Persons)(Amendment) Regulations 2018 w.e.f. February 6, 2018 introducing new concepts like “Evaluation Matrix”, “Fair Value” and introducing timelines w.r.t Resolution Plan. Focus has been laid on recovery of maximum value of assets.
A brief comparison of the two regulations is as under:-
| REGULATION | SUBJECT | PRE AMENDMENT | POST AMENDMENT | REMARKS |
| 2(1)(ha) | Definition of Evaluation Matrix | – | Evaluation Matrix means such parameters to be applied and the manner of applying such parameters as approved by the committee for consideration of resolution plans for its approval | Introduction of Evaluation Matrix will standardize the parameters applied for the approval of resolution plans which can be agreed upon by the RP and the committee |
| 2(1)(hb)
(New Clause) |
Fair Value | Fair Value means the estimated realizable value of the assets of the corporate debtor, if they were to be exchanged on the insolvency commencement date between a willing buyer and a willing seller in an arms length transaction, after proper marketing and where the parties had acted knowledgeably, prudently and without compulsion.
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The concept of Fair Value will help to recover the current market value of the assets so as to achieve the maximum value of the assets | |
| 2(1)(k) | Definition of Liquidation Value | Liquidation Value means the amount determined in
accordance with Regulation 35 |
Liquidation Value means the estimated realizable value of the assets of the corporate debtor if the corporate debtor were to be liquidated on the insolvency commencement date | The definition is now applicable for wherever mentioned whereas it was earlier clause based |
| 27 | Appointment of Registered Valuer | The IRP shall within 7 days appoint 2 registered valuers to determine liquidation value | The IRP shall within 7 days appoint 2 registered valuers to determine the fair value and liquidation value | With the concept of Fair Value being introduced, the Registered Valuer will also determine the Fair Value along with the Liquidation Value |
| 35 | Determination of Fair Value and Liquidation Value | (a) Provides only for the determination of Liquidation Value
(b) Provision of the liquidation value so determined to the members of the committee after receiving undertaking that confidentiality will be maintained |
(a) Provides for the determination of both the Fair Value and Liquidation value
(b) Provision of the fair and liquidation values so determined to the members of the committee after receiving undertaking that confidentiality will be maintained |
With the concept of Fair Value being introduced, the RP will provide both Fair Value and Liquidation Value to the committee. |
| 36(1) | Information Memorandum | The IRP or RP, shall submit an information memorandum in electronic form to each member of the committee and any potential resolution applicant. | The RP shall submit the
information memorandum in electronic form to (a) each member of the committee within two weeks of his appointment as RP and (b) to each prospective resolution applicant latest by the date of invitation of resolution plan |
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| 36(2)(a) | Details of assets and liabilities | Assets and liabilities, as on the insolvency commencement date, classified into appropriate categories for easy identification, with estimated values assigned to each category; | Assets and liabilities with such description, as on the insolvency commencement date, as are generally necessary for ascertaining their values like the date of acquisition, cost of acquisition, remaining useful life. | Will facilitate to ascertain a better value of individual assets and liabilities rather than assigning values depending upon the category it falls into. |
| 36(4) | Sharing of Information Memorandum | Both the IRP and RP can share the Information Memorandum on receipt of undertaking to maintain confidentiality from the recipient | Only the RP can share the Information Memorandum on receipt of such undertaking | |
| 36A
(new regulation) |
Invitation of Resolution Plans | – | (1) The RP shall issue an invitation, including Evaluation Matrix to the prospective resolution applicants to submit resolution plans atleast 30 days before the last day of submission of the resolution plan
(2) Where the invitation does not contain the Evaluation Matrix, the RP with the approval of the committee, will submit the Evaluation Matrix atleast 15 days before the last day to submit the resolution plan. (3) The abovementioned timeline is not applicable where § A period of less than 37 days is left for submission of Resolution Plan under sub reg. (1) § A period of less than 18 days is left for submission under sub reg. (2) |
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| 37 | Resolution Plan | Provides for measures required for implementing it. | Provides measures required for implementing it as well as maximization of the value of the assets
New clause : (j) change in portfolio of goods or services produced or rendered by the corporate debtor (k) change in technology used by the corporate debtor |
Provides measures to maximize the value of assets so that resolution plan is approved by the creditors.
It also adds to the scope of what is included as measures of resolution . |
| 39(3A)
New sub regulation |
Specification of amount payable from resources | – | The committee shall, while approving the resolution plan specify the amounts payable from resources under the resolution plan | Removes ambiguity as to amount payable from the resources. |
| 39 (4) | Submission of Resolution Plan to Adjudicating Authority | The RP shall submit the resolution plan approved by the committee to the Adjudicating Authority with the certification that:
(a)the contents of the resolution plan meet all the requirements of the Code and the Regulations; and (b)the resolution plan has been approved by the committee. |
The RP shall submit the resolution plan approved by the committee to the Adjudicating Authority, at least fifteen days before the expiry of the maximum period permitted for the completion of the corporate insolvency resolution process with same contents
Provided that the timeline specified in this sub-regulation shall not apply to an ongoing corporate insolvency resolution process which has completed 130th day from its commencement date.
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| Form G
(New Form) |
Invitation of Resolution Plan | – | A comprehensive Form containing all relevant information required for invitation of Resolution Plan. |
Thus, the IBBI (Insolvency Resolution Process for Corporate Persons)(Amendment) Regulations 2018 has introduced concepts of “Evaluation Matrix”, “Fair Value” which will result in maximum realisation of value of assets. By adding timelines w.r.t Resolution Plan, it has been ensured that all requirements are timely complied with, leading to more efficient resolution of matters.