By Rupin Chopra and Vikram Narula
The Ministry of Corporate Affairs (“MCA”) notified the Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules, 2019 (hereinafter referred to as the “Rules”) on 15 November 2019. The objective of notifying the Rules was to provide a framework for insolvency and liquidation proceedings of Financial Service Providers (hereinafter referred to as “FSPs”) other than banks.
The Rules shall be applicable to FSPs (to be notified by the Central Government) as per Section 227 of Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “Code”) with periodical discussions with appropriate regulators, for the purpose of their insolvency and liquidation proceedings.
The Code provides a holistic structure for reorganising, insolvency resolution and liquidation of LLP’s, partnership firms and individuals in a specified time frame. The framework under Section 227 of the Code for FSPs aims at serving a provisional mechanism for the purpose of dealing with any constraints prior to the introduction of a legislation /rules to deal with financial resolution of banks and FSPs. The framework under Section 227 of the Code shall not be applicable to Banks.
As per the Rules, the provisions of the Code relating to the Corporate Insolvency Resolution Process (CIRP), Liquidation Process and Voluntary Liquidation Process for a corporate debtor, shall apply to a process for an FSP, subject to modifications which are mentioned below:
- The CIRP of an FSP shall be initiated basis an application by the appropriate regulator.
- On admission of the application for initiation of CIRP, the adjudicating authority shall appoint an individual as the administrator as proposed by the appropriate regulator.
- While conducting a proceeding of an FSP, the administrator shall have the same roles and responsibilities of an insolvency professional, IRP or liquidator.
- An advisory committee may be constituted by the appropriate regulator for the purpose of advising the administrator in the operations of the FSP during the CIRP.
- Interim moratorium shall commence from the date of filing of the application for commencement of CIRP till admission/rejection by the adjudicating authority,
- Provisions pertaining to interim-moratorium / moratorium shall not apply to any third-party assets in possession of the FSP
- Third-party assets in possession of the FSP’s shall be required to be controlled by the administrator and dealt in a manner to be notified by the Central Government as per Section 227 of the Code.
- License authorising FSP to engage in the business of providing financial services shall not be suspended during interim-moratorium and the CIRP.
- Post approval of the resolution plan by the Committee of Creditors, the administrator shall seek a ‘no objection’ from the appropriate regulator stating it has no objection to the persons who would be in control of FSP post approval of the resolution plan.
- Prior permission of the appropriate regulator for initiating voluntary liquidation proceedings will be required to be obtained by the FSP.
- The appropriate regulator shall be provided an opportunity of being heard by the Adjudicating Authority before passing an order for liquidation of the FSP.
These Rules shall come into force on the date of their publication in the official gazette.