Amendments Aimed At The Committee Of Creditors

1. Amendments to Regulation 25(5)(b): Voting by the Committee

   Before the amendment, the CIRP Regulations mandated the Resolution Professional to open the voting system to obtain votes from Committee of Creditors members who did not vote at the meeting on the listed matters for at least 24 hours from the time the minutes were circulated. But now the following changes have been introduced:
   • The electronic voting window for members who did not vote in person at the meeting is now set to be open for a period between 24 hours and 7 days.
   • If requested by a creditor, the voting window can be extended by an additional 24 hours.
   • If a matter has already obtained the required majority and one extension has been granted after achieving this majority, the RP must not extend the voting window further.
   The advantages of this amendment in the voting system of the Committee of Creditors are:
   • Enhanced Participation: By allowing a voting window of 24 hours to seven days, members who were unable to attend the meeting in person have sufficient time to cast their votes electronically, leading to greater involvement from all members.
   • Flexibility for Creditors: The provision to extend the voting window by an additional 24 hours upon request by a creditor ensures that members have ample opportunity to participate, accommodating those who may need extra time.
   • Inclusivity: This approach ensures that every member's voice can be heard, even if they cannot attend the meeting in person, promoting a more inclusive decision-making environment.
   • Efficient Decision-Making: Clear rules regarding the voting period and extensions help streamline the decision-making process, making it more efficient and reducing ambiguity.
   • Improved Governance: These changes support better governance practices by balancing the need for thorough participation with the necessity of timely decisions.
      

2. Amendments to Regulation 18(1): Meetings of the Committee

   Before the amendment, the CIRP Regulations stipulated that the Resolution Professional could convene a meeting of the Committee of Creditors whenever deemed necessary. But now after the amendment, the Resolution Professional is required to convene a Committee of Creditors meeting within 30 days following the previous meeting. Nonetheless, if deemed appropriate by the Committee of Creditors, the time between meetings can be extended, with the stipulation that a meeting must occur at least once every three months (quarter). The advantages of this amendment in the conduct of the meeting of the Committee of Creditors are:
   • Regular Communication: Promotes more regular communication and decision-making among the Committee of Creditors.
   • Positive Resolution: Facilitates a proactive approach to resolving insolvency cases.
   • Flexibility in CIRP: Provides flexibility by allowing longer intervals between meetings when agreed upon by the CoC.
   • Regularity in meetings: Maintains a minimum frequency of meetings (at least once every three months) to ensure ongoing progress.
   • Transparency: Enhances transparency and accountability in the insolvency resolution process.
      

3. Amendment to Regulation 36(2): Fair value in Information Memorandum

   Before the amendment, the information memorandum did not explicitly mention the fair value of the corporate debtor, even if it included comprehensive details about assets, liabilities, financial records, and other relevant data. Now, Regulation 36(2)(ka) has been inserted in the regulations that now require the disclosure of the fair value of assets in the information memorandum. This change aids the Resolution Professional in creating competitive bids and understanding the corporate debtor's value. However, the Committee of Creditors retains the right to withhold this information if they believe that its disclosure could impede the resolution process. The advantages of this amendment in relation to the Information Memorandum are:
   • Accurate Information: By mandating the inclusion of fair value, the amendment ensures that all stakeholders have access to accurate and complete financial information, fostering greater transparency in the resolution process.
   • Improved Bid Formulation: Resolution professionals can better formulate competing bids with a clear understanding of the corporate debtor's value, leading to more realistic and competitive offers.
   • Informed Decision-Making: Creditors and potential investors can make more informed decisions based on the fair value of the assets, leading to more effective and efficient resolution outcomes.
   • Fair Valuation: The amendment helps in achieving a fair valuation of the corporate debtor's assets, preventing undervaluation or overvaluation, which can adversely affect the settlement process.
   • Increased Investor Confidence: Clear and comprehensive financial disclosures boost investor confidence, making the corporate debtor more attractive to potential investors.
   • Mitigation of Disputes: Providing the fair value of assets can help in mitigating disputes among stakeholders regarding the valuation and distribution of assets, leading to smoother resolution proceedings.
    

4. Amendment to Regulation 35(1)(a): Fair Value and Liquidation Value

   In regulation 35(1), after clause (a), a proviso has been inserted wherein now the Resolution professionals must provide an explanation of the valuation methodology to the members before calculating estimates. Previously, they were not required to explicitly detail the valuation methods and techniques to the Committee of Creditors beyond presenting the valuation reports. Since valuation is a crucial aspect of the CIRP, this amendment reduces disagreements, increases transparency, and enhances the CoC members' understanding and participation during the CIRP. The benefit of this amendment in determining the fair and liquidation value is:
   • Increased Transparency: By detailing the valuation methodology, Resolution Professionals provide greater transparency, allowing Committee of Creditors members to fully understand how asset values are determined.
   • Reduced Disagreements: Clear explanations of valuation methods reduce the potential for disputes among stakeholders regarding the valuation outcomes, fostering smoother resolution proceedings.
   • Better Participation: Committee of Creditors members can engage more effectively in the resolution process, providing valuable input and feedback based on a clearer understanding of valuation techniques.
   • Consistent Valuation Practices: Standardizing the explanation of valuation methodologies promotes consistency in valuation practices, ensuring that all parties have a common framework for understanding asset values.
   • Enhanced Regulatory Compliance: This amendment aligns with regulatory best practices, ensuring that the resolution process adheres to established guidelines and standards.
   • Streamlined Decision-Making: With a clear grasp of the valuation methodology, CoC members can make quicker and more decisive contributions, accelerating the resolution process.
    

5. Amendment to Regulation 35(2): Fair Value and Liquidation Value

   After the amendment, the Resolution Professional will electronically provide the fair value, liquidation value, and valuation reports to each committee member. This will be done upon receiving an assurance from the member that they will maintain the confidentiality of the fair value, liquidation value, and valuation reports. Furthermore, they agree not to exploit the information from the valuation reports for personal gain or loss, and to comply with the requirements outlined in section 29(2). The benefit of this amendment in determining the fair and liquidation value is:
   • Enhanced Confidentiality: By requiring an undertaking from committee members to maintain the confidentiality of the fair value, liquidation value, and valuation reports, the amendment ensures that sensitive financial information is safeguarded. This helps prevent leaks of critical information that could impact the resolution process or the interests of stakeholders.
   • Prevention of Unfair Advantage: The amendment explicitly prohibits committee members from using the information contained in the valuation reports to cause undue gain or loss to themselves or others. This helps promote fairness and transparency in the resolution process, preventing any party from exploiting insider knowledge for personal benefit at the expense of others.
   • Compliance Assurance: By mandating compliance with the requirements outlined in section 29(2), the amendment ensures that committee members adhere to legal and regulatory obligations. This promotes accountability and integrity within the resolution process, reducing the risk of misconduct or non-compliance.
   • Efficient Information Distribution: Requiring the Resolution Professional to provide fair value, liquidation value, and valuation reports in electronic form streamlines the dissemination of crucial financial data to committee members. This facilitates informed decision-making and ensures that all stakeholders have access to relevant information in a timely manner, potentially expediting the resolution process.
    

6. Amendment to Regulation 38: Constituting monitoring committee

   Two sub-regulations have been inserted in Regulation 38 i.e., Regulation 38(4) and 38(5). This amendment empowers the Committee of Creditors to form a Monitoring Committee under regulation 38(4) to oversee the implementation of the resolution plan if deemed necessary. As per regulation 38(5), this committee can include the Resolution Professional, another insolvency professional, or any other designated person. This measure ensures the proper functioning of the Resolution Professional and other professionals during the CIRP. It also guarantees adherence to the plan's terms and holds parties accountable for fulfilling their obligations, thereby increasing the likelihood of successful resolutions.
   The advantages of this amendment are:
   • Enhanced Oversight: The Monitoring Committee ensures continuous oversight of the resolution plan's implementation, leading to more effective supervision.
   • Accountability: By holding all parties accountable for fulfilling their obligations, this amendment increases responsibility and adherence to the agreed terms of the resolution plan.
   • Increased Success Rates: The added layer of supervision and accountability is likely to result in higher success rates in the resolution process, as issues can be promptly identified and addressed.
   • Expert Involvement: Including the Resolution Professional, other insolvency professionals, or designated persons ensures that the Monitoring Committee has the expertise necessary to effectively oversee the process.
   • Stakeholder Confidence: Continuous monitoring builds confidence among creditors and other stakeholders in the resolution process, as they can be assured that the plan is being properly executed.
   • Problem Resolution: The committee can identify and resolve issues early in the implementation phase, preventing potential setbacks and delays.
   • Consistent Execution: Ensuring that the terms of the resolution plan are adhered to leads to a more consistent and predictable execution of the plan.
      

Amendments Related To The Resolution Professional

1. Amendment to Regulation 31: Insolvency Resolution Process Costs: Regulation 31B has been inserted in Regulation 31, wherein the Resolution Professional must obtain the Committee of Creditors' approval for all expenses and costs accrued during the resolution process. Additionally, the operating status of the corporate debtor must be addressed in every meeting. This encompasses all essential ongoing expenses necessary to preserve the corporate debtor's value. This alteration guarantees the Committee of Creditors' direct involvement in actively monitoring and overseeing the expenses incurred by the Resolution Professional throughout the process. The advantages of this amendment for determining the Insolvency Resolution Process Costs are:
   • Financial Oversight: The CoC's involvement ensures diligent oversight of expenditures, preventing misuse of funds and promoting financial prudence throughout the resolution process.
   • Cost Efficiency: By scrutinizing expenses, the CoC can identify potential cost-saving opportunities and ensure that resources are allocated efficiently, maximizing value for stakeholders.
   • Risk Mitigation: Active monitoring of expenditures helps mitigate the risk of overspending or unauthorized expenses, reducing the likelihood of financial mismanagement or fraud.
   • Stakeholder Protection: The CoC's oversight safeguards the interests of stakeholders by ensuring that expenditures align with the resolution objectives and benefit the corporate debtor's value.
   • Timely Intervention: Regular updates on the operating status allow the CoC to intervene promptly in case of any emerging challenges or deviations from the resolution plan, preventing potential setbacks.
   • Enhanced Collaboration: Collaboration between the Resolution Professional and the CoC fosters a shared understanding of financial priorities and promotes consensus-driven decision-making.
   • Optimized Resource Allocation: The CoC's involvement facilitates strategic decision-making regarding resource allocation, ensuring that funds are directed towards activities essential for the corporate debtor's recovery and sustainability.
      
2. Clarification to Regulation 40(2): Extension of the corporate insolvency resolution process period: A clarification has been inserted to eliminate any uncertainty regarding the responsibilities of the Resolution Professional during the interim period when an extension application is pending but not yet decided upon. It specifies that the Resolution Professional must continue overseeing the affairs of the corporate debtor to ensure uninterrupted progress of the resolution process, even while awaiting a decision on the extension application. The amendment clarifying the responsibilities of the Resolution Professional during the interim period when an extension application is pending offers several advantages:
   • Continuity of Operations: Ensures the seamless continuation of the resolution process without interruption, minimizing disruptions to the corporate debtor's operations.
   • Efficient Resource Management: Allows for the efficient utilization of resources and personnel, preventing delays or inefficiencies that could arise from a pause in the resolution process.
   • Stakeholder Confidence: Instills confidence among stakeholders, including creditors and investors, by demonstrating proactive management and commitment to the resolution process.
   • Compliance with Timelines: Helps in adhering to statutory timelines and obligations associated with the resolution process, avoiding potential penalties or delays.
   • Preservation of Value: Protects the value of assets and preserves the corporate debtor's viability by preventing any stagnation or decline in operations during the interim period.
   • Clear Guidelines: Provides clarity on the Resolution Professional's duties and responsibilities, reducing ambiguity and ensuring consistent adherence to regulatory requirements.

Amendments Concerning Real Estate

1. Amendment to Regulation 4: Separate bank account for each real estate project of the corporate debtor:
   Regulation 4D has been inserted in Regulation 4 to safeguard stakeholder interests, enhance financial transparency, and increase accountability. The amendment to regulation 4D mandates that the Resolution Professional must maintain a separate bank account for each real estate project involving the corporate debtor. Previously, financial transactions for various projects were merged, making it challenging to track financial flows and obligations for specific projects. This significant change improves financial responsibility and ensures greater transparency, especially in the complex real estate sector. The advantages of this amendment in the real estate projects are:
   • Better Stakeholder Protection: Stakeholders, including creditors and investors, can more easily track the financial health and obligations of specific projects, protecting their interests.
   • Reduced Financial Mismanagement: By separating accounts, the risk of financial mismanagement, misappropriation, or diversion of funds is significantly reduced.
   • Simplified Auditing and Reporting: Financial auditing and reporting become more straightforward and accurate, as each project's financial data is distinct and well-organized.
   • Greater Confidence Among Investors: Transparency and accountability foster greater confidence among investors and potential buyers, making real estate projects more attractive.
   • Clearer Financial Obligations: It becomes easier to identify and fulfill financial obligations related to specific projects, reducing the likelihood of missed payments or financial disputes.
   • Focused Financial Management: Separate accounts allow for more focused and dedicated financial management of each project, improving overall project execution and financial health.
      
2. Clarification to Regulation 36A(1): Separate plan for each real estate project:
   In Regulation 36A(1) clarification has been added that shall allow the Committee of Creditors to instruct the Resolution Professional to solicit individual resolution proposals for each real estate project after a comprehensive review. Previously, the corporate debtor submitted a single, consolidated resolution plan that did not consider the unique characteristics and financial status of each project. The Committee of Creditors can now access and determine if a separate resolution plan is necessary for a specific project to benefit the stakeholders involved.
    

• Tailored Solutions: Individual resolution proposals can be tailored to address the specific needs, financial health, and characteristics of each real estate project, leading to more effective solutions.
• Improved Project Viability: By considering the unique aspects of each project, the resolution plans can better address viability issues, enhancing the chances of successful completion.
• Enhanced Stakeholder Benefits: Stakeholders, including creditors and investors, can receive more targeted and appropriate resolutions for their specific investments, protecting their interests more effectively.
• Better Risk Management: Separate proposals help in identifying and managing risks unique to each project, reducing the overall risk exposure.
• Efficient Resource Allocation: Resources can be allocated more efficiently based on the specific needs of each project, ensuring optimal use of funds and efforts.
• Higher Success Rates: Customized resolutions increase the likelihood of successful project completion, as plans are designed to address the specific challenges and opportunities of each project.
• Flexibility in Planning: The Committee of Creditors can adapt and modify plans based on the evolving circumstances of each project, providing greater flexibility in the resolution process.