IBBI proposes code of conduct for CoCs | Economic Times

The Insolvency and Bankruptcy Board of India (IBBI) has proposed a code of conduct for the committee of creditors and measures to strengthen the regulatory framework for the liquidation process. It has sought public comments on discussion papers related to the corporate insolvency resolution process (CIRP).The discussion paper related to CIRP, released on Friday, is focused on three issues — code of conduct for committee of creditors (CoC), restrictions on request for resolution plans and use of ‘Swiss challenge’ method, and treatment of live bank guarantees and line of credit as claims.The proposal for a code of conduct also comes against the backdrop of instances where the conduct of CoCs or some financial creditors have been under question.The IBBI has said since the decisions of the CoC impacted the life of a firm and consequently its stakeholders, it needed to be fair and transparent in its decisions. “Specifying a code of conduct will promote transparent working of the CoC and make participating members accountable for their actions during the process,” it said.Such power should come with accountability, said the IBBI.“Any attempt by members of CoC to make favourable decisions in the interest of any particular (group of) stakeholder(s) would be avoided, thereby ensuring that the principle of fairness is met,” it said.Further, the IBBI said the code of conduct would also promote higher responsibility to make decisions in the interest of all stakeholders instead of their own self interests.“The Board proposes to put in place a code of conduct for CoC that shall elevate accountability and responsibility of CoC to ensure transparency in the functioning of a CoC... the proposed code of conduct establishes broad principles that can be applied to every situation,” it said. The code also draws from the ethical norms on which a CoC is expected to function and shall act as its guiding light, it said. Another proposal is with respect to use of the Swiss challenge method for bidders. Under this system, a bidder (original bidder) makes an unsolicited bid to the auctioneer. Once approved, the auctioneer then seeks counter proposals against the original bidder’s proposal and chooses the best among all options.The IBBI also proposed changes to liquidation. “It is proposed to provide in the liquidation regulations that the liquidator shall consult stakeholders’ consultation committee (SCC) for all significant matters related to liquidation process, including appointment of professionals (and their remuneration), and sale of assets (including major aspects such as fixation of reserve price, manner of sale, etc),” the regulator noted seeking comments.The discussion paper also proposed to provide in the liquidation regulations that if the secured creditors having 60% of the value in the secured debt decide to relinquish or realise the security interest, such decision shall be binding on the other pari passu charge holders, who are on an equal footing. The deadline for submitting the public comments on the discussion papers is September 17.