New IBBI Rules Target Surrogate Bids for Insolvent Companies
The Insolvency and Bankruptcy Board of India (IBBI) has proposed stricter disclosure requirements for bidders of insolvent companies. This move aims to prevent former promoters from using proxies to regain control of assets through the corporate insolvency resolution process (CIRP).
Key Takeaways
- Bidders must disclose all beneficial owners and submit detailed ownership structures
- Affidavit required confirming eligibility for immunity under Section 32A of IBC
- New rules target surrogate bidding by delinquent promoters
- Listed entities and certain foreign companies get limited exemptions
Enhanced Disclosure Requirements
Under the new proposals, prospective resolution applicants must provide a statement of beneficial ownership covering all natural persons who ultimately own or control the bidding entity. This includes complete shareholding structures and jurisdiction details of each intermediate entity.
Additionally, bidders must submit an affidavit disclosing whether they qualify for benefits under Section 32A of the IBC, which provides immunity from prosecution for offences committed before CIRP commencement.
Closing Regulatory Gaps
Devendra Mehta, partner at PwC, explained: “Even though Section 29A of IBC prohibits certain individuals from bidding, it doesn’t require beneficial ownership disclosure. This document will strengthen norms and make it difficult for former promoters to submit indirect bids.”
Vijay K. Singh of S&A Law Offices added: “Presently, there’s no way for resolution professionals and creditors to know who controls the bidding entity. This notification will correct such lacunae in the system.”
Potential Impact on Foreign Bidders
Some experts warn the stricter rules could discourage foreign entities from participating in CIRP. An insolvency lawyer noted: “Some foreign entities are bound by confidentiality at every stage. The government’s focus on more disclosures may discourage them.”
Exemptions for Listed Entities
The IBBI has provided exemptions for listed entities, listed subsidiaries, and entities in notified jurisdictions from furnishing granular shareholder details. This recognizes sufficient public disclosures already available under SEBI (LODR) Regulations, 2015.
However, as Singh pointed out, “Institutional investors governed by foreign confidentiality norms may find the natural person-level disclosure incompatible with their jurisdiction laws.”
