No longer a dreaded process? ‘Fair Value’ Concept introduced in Insolvency Resolution Process. IBBI amends IBC (Fast Track Insolvency Resolution Process for Corporate Persons) Regulations, 2017

The IBBI has amended the IBC (Fast Track Insolvency Resolution Process for Corporate Persons) Regulations, 2017, to introduce the much needed concept of ‘Fair Value’. (Read Here)

The newly introduced concept will add quality and value to the Resolution Process thereby no longer making it a dreaded scheme for the corporate debtors and corporate applicants.

The Amendment makes it mandatory for a Resolution Professional to appoint a registered valuer to determine the fair value and the liquidation value of the corporate debtor and to submit the information memorandum of the fair value and liquidation value in electronic form to the Committee of Creditors (CoC) and to each prospective resolution applicant.

The Amendment further stresses upon strong confidentiality being maintained by the stakeholders in the whole process for which it prescribes that the said information on the valuation shall only be provided upon receiving a confidentiality undertaking from each one of them.

The Amendment incorporates following changes into the resolution process for corporate persons:

  1. Resolution professional (RP) to appoint registered valuers for determining ‘fair value’ and ‘liquidation value’ of the corporate debtor.
  2. Within 2 weeks of appointment, RP to obtain ‘Confidentiality Undertaking’ from all stakeholders and provide them Valuation in electronic form.
  3. Confidentiality to be maintained by each stakeholder in the process including (a). resolution professional (b). registered valuers, (c). Committee of Creditors, and (d). each prospective resolution applicant in the process.
  4. RP to issue an invitation, including the evaluation matrix, to the prospective resolution applicants.
  5. Prospective resolution applicant to get at least 15 days from the issue of invitation to submit resolution plans to the RP.
  6. Similarly the prospective resolution applicant shall get at least 15 days from the issue of invitation by RP to submit resolution plans.
  7. Resolution plan to provide for the measures for insolvency resolution of the corporate debtor for maximization of value of its assets including suggestions such as reduction in the amount payable to the creditors, extension of a maturity date or a change in interest rate or other terms of a debt due from the corporate debtor, change in portfolio of goods or services produced or rendered by the corporate debtor, and change in technology used by the corporate debtor.
  8. RP to submit the resolution plan approved by the COC to NCLT at least 15 days prior to the expiry of time limit for completion of whole corporate insolvency resolution process.

These changes will now help banks to know the real market value of the insolvent company. The banks earlier had a lower liquidation value before initiation of the Insolvency Resolution Process thereby making it a dreaded activity/process for all the stakeholders.

The whole process is now expected to be more transparent and effective after the newly introduced amendment.

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