Since the inception of the Insolvency and Bankruptcy Code, 2016 (the “Code”), the objective of the Code has been the maximization of the value of the assets of the corporate persons and thereby its resolution. The Code lays down the procedure for inviting the resolutions plans whereby the potential resolution applicants have to submit their bids within the specified timeframe and the committee of creditors have to evaluate the plans received, as per the evaluation matrix and hence declares the successful resolution applicant.
In recent past, it was seen that certain successful resolution applicants on one pretext of the other had come forward for withdrawal of the resolution plan or failed to implement or comply with the commitments made under the plan thus approved. For instance, in the matter of Adhunik Metaliks Limited & Amtek Auto Limited, successful resolution applicant UK-based Liberty House, didn’t fulfill its commitment and had not made the upfront cash payment within the stipulated time. On the other hand in Ruchi Soya Industries Limited, the resolution plan submitted by Adani Wilmer was approved by the committee of creditors and pending before Hon’ble National Company Law Tribunal (“NCLT”) for the approval. However, during the pendency of matter, the resolution applicant prayed before the Hon’ble Tribunal for withdrawing its resolution plan.
Concerning above, it was felt that some assurance, security or safeguard should be provided to the stakeholders of the corporate debtor once the resolution plan is approved and there should not any delay in the implementation. In case the approved plan is withdrawn at a later stage it would be gravely prejudicial to the corporate debtor, its stakeholders as well as other unsuccessful bidders. It will cause restart of the whole bidding process and the delay might further deplete the value of the assets of the corporate debtor.
In view of the above, IBBI vide its notification dated 24.01.2019 for effective implementation of the resolution plan has amended Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (the ‘Amendment’). The Amendment inter alia provides that the successful resolution applicant shall provide a performance security within specified time after the approval of resolution plan. Upon failure to implement the resolution plan, such performance security shall be forfeited. The amendment provides as follows:
- Requires the resolution applicant to provide performance security whose resolution plan has been approved by committee of creditors.
- Resolution professional to attach the evidence of receipt of performance security while submitting the resolution plan to the NCLT for approval. Such performance security shall be forfeited if the resolution applicant fails to implement the resolution plan, after its approval by the NCLT.
- Requires the resolution applicant to provide the details in the resolution plan, as to whether the resolution applicant or any of its related parties has failed to implement or contributed to the failure of implementation of any resolution plan approved by the NCLT under the Code at any time in the past.
- It also enables a creditor, who is aggrieved by non-implementation of a resolution plan approved by the NCLT, to apply to the NCLT for appropriate directions.
The aforesaid amendments are effective from 24.01.2019.