Insolvency: what is important about “information services”

“Information Services” (IU) established under the Insolvency and Bankruptcy Code provide authenticated debt and default information, which a jurisdictional authority can rely on as proof of money owed by the company facing insolvency.

It is intended that the contracting authority rely solely on the EI, and not on the documents and records of the parties, to establish facts such as credit granted and/or default. In accordance with recent amendments to the Information Utilities (IBBI) Regulations 2017, creditors must submit details of the default to the contracting authority.

Origin of the delay

The Board of Insolvency and Bankruptcy of India (IBBI) and the Ministry of Commercial Affairs have independently noted the delay in launching the Corporate Insolvency Resolution Process (CIRP), resulting in the erosion and devaluation of assets of the debtor company.

The IBBI believed that information on debts or defaults should be streamlined, the current process for authenticating information should be improved, information asymmetry between creditors should be reduced, and the default record should be submitted by both financial and operational creditors.

The Department, in its May 2022 “Insolvency Law Committee Report,” recommended that financial creditors be mandated to submit IE records with the CIRP application; the contracting authority should not ask for any other information to prove the defect.

Changes to IU’s regulations in June 2022 state that before filing a CIRP request, creditors must file default information with IU, which will process it to issue a record of default. The IE is required to provide information about the defect to the debtor company for authentication. If the debtor company does not confirm the default beyond three reminders (sent three days apart), the information is deemed authenticated.

Then the UI should record the default information authentication and forward it to the creditors. For financial creditors, information can be recorded under two headings: authenticated or disputed. For other creditors, the information may be authenticated, contested or deemed authenticated.

Effective step

The obligation to submit a defect file held by IU is certainly a step in the right direction. It will ensure that CIRP initiation requests are either granted or rejected within a specified time frame.

Creditors should take note of the changes before initiating the CIRP. The aspect to be considered is that the debtors have the possibility of contesting the information and, therefore, the adjudicating authority will have to rely on the documents and registers available from the parties, which leads the competent authority to rule on disputes relating to the defect itself, which was never the intention.

(The authors are respectively a partner and an attorney with Shardul Amarchand Mangaldas, a law firm)

Published on

September 25, 2022