Timelines for large accounts under Insolvency and Bankruptcy Code 2016 (IBC)

(This post elucidates details of timelines for implementation of Resolution Plan (RP) and insolvency application to be filed by the lenders if a RP is not implemented as per the timeline.)

In terms of RBI circular dated February 12, 2018, the ‘Resolution Plans’ (RP) under IBC shall be implemented within the timeline given  below in respect of  large accounts where the exposures of lender at Rs.20 billion and above on or after March 1, 2018 ( called as ‘reference date’). The Resolution Plans under IBC also covers such accounts where resolution might have already initiated under any of the previous schemes as well as accounts classified as restructured standard assets which are currently in respective specified period as per previous guidelines.

Timelines for implementation of Resolution Plan (RP) and insolvency application:

If the account is in default as on the reference date (on or after March 1, 2018), then 180 days from the reference date or  if  the account is in default after the reference date, then 180 days from the date of first such default.

If a RP is not implemented as per the above timeline, lender requires filing of insolvency application under IBC, singly or jointly within 15 days from the expiry of above mentioned timeline. In the cases where a RP involving restructuring/change in ownership is implemented within the timeline, the account should not be in default at any point of time during the ‘specified period’ failing which the lender requires to file an insolvency application under IBC singly or jointly, within 15 days from the date of such default.

[‘Specified period’ means the period from the date of implementation of RP up to the date by which at least 20 percent of the outstanding principal debt as per the RP and interest capitalisation sanctioned as part of the restructuring, if any, is repaid. Provided that the specified period cannot end before one year from the commencement of the first payment of interest or principal (whichever is later) on the credit facility with longest period of moratorium under the terms of RP.]

The default in payment after the expiry of the specified period will be reckoned as a fresh default for the purpose of this framework.

Determination of ‘Reference date’ for the lender’s exposure below Rs.20 billion:

The accounts where aggregate exposure of the lenders is below ₹ 20 billion and, at or above ₹ 1 billion, the Reserve Bank intends to announce, over a two-year period, reference dates for implementing the RP to ensure calibrated, time-bound resolution of all such accounts in default. However, RBI in its circular dated February 12, 2018 clarified that the said transition arrangement shall not be available for borrower entities in respect of which specific instructions have already been issued by the Reserve Bank to the banks for reference under IBC. Lenders are permitted to pursue such cases as per the earlier instructions.

As per RBI notification to all Scheduled Commercial Banks (excluding- RRBs), and All-India Financial Institutions (Exim Bank, NABARD, NHB and SIDBI) that `any failure on their part meeting the prescribed timelines or any actions by lenders with an intent to conceal the actual status of accounts or evergreen the stressed accounts, will be subjected to stringent supervisory, enforcement actions, which may include “but not limited to, higher provisioning on such accounts and monetary penalties. Banks also need to make appropriate disclosures in their financial statements, under ‘Notes on Accounts’, relating to resolution plans implemented.

Related articles:

1. What’s new in Insolvency and bankruptcy code (amendment) Bill 2017?
2. Resolution of Stressed Assets: RBI scraps all existing debt restructuring schemes
3. Insolvency and Bankruptcy Code, 2016 (IBC)
4. Salient features of IBC (amendment) ordinance 2018