Ministry of Corporate Affairs notifies IBC Rules 2019

The Ministry of Corporate Affairs (MCA) has issued rules that provide a framework for bringing ‘systemically important financial service providers’ under the purview of the Insolvency and Bankruptcy Code, 2016 (IBC).

Section 227 of the Insolvency and Bankruptcy Code, 2016 enables the Central government to notify, in consultation with the financial sector regulators, financial service providers (FSPs) or categories of FSPs for the purpose of insolvency and liquidation proceedings.

The Ministry of Corporate Affairs has notified the Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules, 2019 to provide a generic framework for insolvency and liquidation proceedings of important FSPs other than banks. The provisions of the IBC relating to the Corporate Insolvency Resolution Process (CIRP) of the corporate debtor shall apply to the insolvency resolution process of a financial service provider (FSP).

Where Corporate Insolvency Resolution Process (CIRP) was to be initiated, the rules laid down that corporate insolvency resolution process cannot be initiated against the FSP which has committed a default under section 4 of the IBC, except upon an application made by the appropriate regulator.

The rules further provided that an interim moratorium shall commence on and from the date of filing of the application under section 14(a) till its admission or rejection; and the license or registration which authorizes the financial service provider to engage in the business of providing financial services shall not be suspended or cancelled during the interim-moratorium and the corporate insolvency resolution process.

It further laid down that an Advisory Committee consisting of three or more members would be constituted within 45 days from the date of commencement of insolvency in order to advise the Administrator in the operations of the FSP during the corporate insolvency resolution process (CIRP).

It has been set out in the MCA notification that upon approval of the resolution plan by the Committee of Creditors (CoC) section 30 (4), the Administrator shall seek ‘no objection’ of the appropriate regulator to the effect that it has no objection to the persons, who would be in control or management of the financial service provider after approval of the resolution plan under section 31. Further, the appropriate regulator shall without prejudice to the provisions contained in section 29A, issue ‘no objection’ on the basis of the ‘fit and proper’ criteria applicable to the business of the FSP.

As far as the liquidation process of FSP is concerned, the Rules state that the license or registration that authorizes the FSP to engage in the business of providing financial services shall not be suspended or cancelled during the liquidation process, unless an opportunity of being heard has been provided to the liquidator. Further, only an Administrator proposed by the appropriate regulator and appointed as such by the Adjudicating Authority shall act as an insolvency professional, interim resolution professional, resolution professional or liquidator.

According to Finance Minister Nirmala Sitharaman the notification was necessitated because there was no system like the IBC that was designed exclusively for financial institutions. She added that it was up to the Reserve Bank of India to now decide which financial companies would be taken up under these rules. She also added that the government was looking to bring out a set of rules exclusively for financial companies as well.