July 22, 2021 3:19:11 am
Resolution Professionals (RPs) managing the operations of distressed companies undergoing corporate insolvency proceedings will now be required to assess and report whether the company has completed any transactions to siphon off funds prior to insolvency proceedings.
Under the Insolvency and Bankruptcy Board of India (IBBI) (Insolvency Resolution Process for Corporate Persons) (Second Amendment) Regulations, 2016 RPs will be required to provide an opinion on whether the company has been subject to avoidance transactions within 75 days of the start of corporate insolvency resolution process (CIRP).
“The RP is duty-bound to find out if a CD (Corporate Debtor) has been subject to avoidance transactions, namely, preferential transactions, undervalued transactions, extortionate credit transactions, fraudulent trading and wrongful trading, and file applications with the adjudicating authority seeking appropriate relief,” said a government release on Wednesday.
It added that such provisions would allow stakeholders to claw back lost value and would disincentivise stakeholders from entering into such transactions.
Experts noted that the time limit for RPs to give an opinion on any potential avoidance transactions may be difficult for some professionals to meet in the case of large corporations if the key personnel of such companies do not cooperate in sharing data with the RP.
Anoop Rawat, partner—insolvency & bankruptcy, Shardul Amarchand Mangaldas & Co, said, “In large cases, the personnel, directors and promoters do not give adequate cooperation for ensuring availability of necessary information and data.”
He added that while the Insolvency and Bankruptcy Code (IBC) mandates that all personnel provide assistance to the RP and allow the professional to approach the National Company Law Tribunal (NCLT) if the personnel do not cooperate, “in reality, the process of cooperation and issue of direction by NCLT is not fast enough to meet the strict timeline prescribed for assessment and determination of avoidance transaction.”
The new regulations also mandate that any appointments made by RPs to assist them in their duties must be conducted on an arm’s length and following a transparent process.
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