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Bankruptcy Rules Face Overhaul: Viability First
17 Feb
Summary
- IBBI proposes testing business viability in the first month of bankruptcy.
- Delayed claims from creditors may be allowed under new draft rules.
- Related-party operational creditors might be excluded from creditor panels.
The Insolvency and Bankruptcy Board of India (IBBI) has introduced draft regulations proposing a crucial test for business viability within the initial month of bankruptcy proceedings. This measure aims to prevent companies from operating as going concerns if they are unlikely to recover, thus avoiding unnecessary costs.
The proposed amendments also seek to allow creditors to submit delayed claims, which resolution professionals must present to tribunals for condoning delays. Furthermore, the IBBI is considering the exclusion of related-party operational creditors, such as suppliers tied to promoters, from creditor committees to ensure impartial decision-making.
Enhanced transparency is a core objective, with proposals for creditor committees to maintain detailed records of deliberations. These records should include justifications for approving bids, investor credibility, and fund availability. This aims to strengthen oversight and reduce potential disputes.
These proposed changes, open for public feedback until March 10, are intended to improve procedural discipline, strengthen creditor oversight, and maximize value in corporate insolvency resolution processes. The IBBI stated that the changes are designed to reduce friction and improve operational efficiency.
