Bidders of stressed assets have to declare their beneficial ownership structure: IBBI paper

The bankruptcy regulator has proposed to make it mandatory for every resolution applicant to file a statement of their beneficial ownership while submitting their plan for a stressed entity under the Insolvency and Bankruptcy Code (IBC).

In a discussion paper floated on Tuesday, the Insolvency and Bankruptcy Board of India (IBBI) has also proposed to explicitly mandate the committee of creditors (CoC) of a stressed firm to deliberate on the eligibility of the resolution applicant, as stipulated under section 29A of the IBC.

The proposals are aimed at reducing litigations emanating from eligibility of the bidders, and improving transparency and integrity of the IBC process. These will eventually cut delays in resolution of stressed assets and help curb their value erosion, said experts.


The IBBI also sought to amend regulations to empower itself to notify an online portal for invitation and submission of resolution plans digitally. This, it reckons, would extend the digitalization benefits currently realized in the liquidation processes to the broader resolution framework.

“The proposal to enable digital submission of resolution plans reflects a commitment to embracing technological advancements, which will serve multiple objectives, including ensuring confidentiality and eliminating information asymmetry in the resolution process,” said Pranay Chitale, partner at Chitale, Verma & Associates.

Stakeholders can submit their comments on the discussion paper by August 27.




CoC deliberations on eligibility

Currently, a resolution applicant is required to submit an affidavit along with the resolution plan declaring his eligibility to bid and the resolution professional has to confirm that the affidavit is in order.

Although it is implied that the CoC, comprising financial creditors, will also ensure eligibility of the resolution applicants while exercising its commercial wisdom, there is no explicit provision to mandate such creditors to formally deliberate on this aspect.

The resolution professional will be required to record the details of this deliberation in the minutes of the meeting.

The discussion paper also suggests the resolution applicant will have to file the beneficial ownership in a format specified by the regulator, covering details of all natural persons who ultimately owns or controls it, together with the shareholding structure and jurisdiction of each intermediate entity.