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IBBI proposes to make the monitoring committee mandatory for all resolution plans

IBBI proposes to make the monitoring committee mandatory for all resolution plans

Insolvency regulator IBBI proposes to make it mandatory to form a monitoring committee for the implementation of all resolution plans under the Corporate Insolvency Resolution Process (CIRP).

To this end, it has issued a discussion paper open to public comments until December 9th.

The proposed move is a consequence of the Supreme Court judgment in State Bank of India & Ors vs. The Consortium of Mr Murari Lal Jalan and Mr Florian Fritsch & Anr, which emphasized the need for statutory recognition of monitoring committees and made several important recommendations their constitution and functioning.

While the current framework provides some basic recognition for monitoring committees under Regulation 38 of the CIRP Regulations, the proposed changes aim to make their composition mandatory for the implementation of all resolution plans.

The Committee

Since the CoC has commercial expertise and while the CIRP is the main decision-making body, the proposed framework empowers the CoC to take the final decision on the constitution, composition and working duration of the Supervisory Committee within the framework of the resolution plan. According to the IBBI discussion paper, the CoC would retain the flexibility to decide on the formation of a monitoring committee with a shorter term if the resolution plan envisages significant implementation during that term with documented reasons.

The monitoring committee should consist of members who have a direct interest in the successful implementation of the resolution plan. The committee will be chaired by either the resolution expert who handled the CIRP or another insolvency expert as suggested by the CoC, the IBBI discussion paper said.

Depiction

To ensure balanced representation of interests, the committee should consist of one or more candidates from the CoC and an equal number of candidates from the successful resolution applicant.

This composition structure ensures that both the interests of the creditors and the implementation capabilities of the resolution applicant are adequately taken into account in the monitoring process.

The framework also provides the flexibility to exclude existing members in the event of changes or to include additional people if the committee deems appropriate. In order to maintain operational efficiency and accountability, it has been provided that the successful resolution applicant will bear all the costs of the SC, while maintaining the existing provision that the monthly fee of the IP is capped at the amount received by the resolution professional during the CIRP period.

The Supervisory Committee has comprehensive oversight and monitoring functions, including monitoring plan implementation, ensuring regulatory compliance and facilitating smooth transfer of assets and control to the successful resolution applicant.

To ensure transparency and accountability, the Committee submits quarterly progress reports on the status of implementation to the relevant authority and the Board.

Siddharth Srivastava, partner at Khaitan & Co, said the move will ensure greater transparency and accountability to achieve successful implementation of the plan and streamline the process. “This will also ensure mandatory representation of COC members on the committee, resulting in better oversight. “An urgently needed step,” he said.

Yogendra Aldak, partner at Lakshmikumaran and Sridharan, said that the mandatory formation of the monitoring committee to monitor the implementation of the approved resolution plan would help achieve the objectives of the Insolvency and Bankruptcy Code, 2016 to simplify and expedite the insolvency process.

Hari Hara Mishra, CEO, Association of ARCs in India, said that the proof of the pudding is in the food and the effectiveness of the solution plan also lies in its effective implementation.

“A monitoring committee empowered under the rules to monitor the implementation of the approved resolution plan and submit quarterly progress reports thereon will bring the implementation part into focus and ensure a better resolution outcome,” he said.