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IBBI urges CoCs to scrutinise information memorandums of insolvent firms
The regulator has also asked creditors to share extracts from any audits they have conducted — such as stock audits, transaction audits, or forensic audits — with the resolution professional (RP) to ensure the IM is accurate.
Due process and bidder eligibility
In a recent discussion paper, the IBBI asked CoCs to formally discuss the eligibility of bidders during their meetings. Experts believe the regulator is seeking to ensure that due processes are followed, after several court rulings criticised CoCs' conduct in various cases.
'To help the RP prepare an accurate IM, creditors are required to provide important data related to the corporate debtor's assets and liabilities. These inputs help in preparing applications for avoidance transactions, ensure correct asset valuation, and lead to a complete and reliable IM,' IBBI Chairperson Ravi Mittal said in the newsletter.
Mittal said the memorandum should also disclose related party transactions as shown in the financial statements. This would help the CoC and prospective resolution applicants identify parties who may be disqualified from submitting a resolution plan under Section 29A of the Insolvency and Bankruptcy Code (IBC) and determine whether exemptions under Section 32A apply.
The regulator has earlier suggested that resolution applicants submit an affidavit stating whether they are eligible for the benefit of Section 32A, which provides immunity to the corporate debtor and its property from prosecution for offences committed prior to commencement of the corporate insolvency resolution process (CIRP). IBBI said this aims to uphold the integrity of the process and prevent potential abuse.
Supreme Court criticism
On May 23, the Supreme Court's two-judge bench of Justices Bela M Trivedi and Satish Chandra Sharma, in the Bhushan Steel and Power matter, strongly criticised the CoC and the RP. It observed that the RP had 'utterly failed' to discharge statutory duties and that the CoC failed to exercise its commercial wisdom while approving the resolution plan of JSW.
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