During the resolution process, an essential element is a public announcement. Only after the Public Announcement in the IBC Process of the initiation of the corporate insolvency resolution process and the call for submission of the creditor’s claims, can the moratorium period officially begin.Â
What is a Public Announcement in CIRP?
Public notice is a formal notice made to inform the creditors of the corporate debtor, the public, and other stakeholders of the initiation of the corporate insolvency resolution process (CIRP) or the liquidation process. This is necessary as it invites claims from creditors. By being aware of the CIRP, creditors, including those who do not have direct communication with the corporate debtor, know about the insolvency proceedings and submit their claims. This helps in identifying the total number of debts and stakeholders involved, ensuring a fair, transparent, and efficient resolution process.
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Legal Basis and Requirements for Public Announcements
As per section 13(1)(b) of the Insolvency and Bankruptcy Code, 2016 (“the IBC”) the Adjudicating Authority, after admission of the application for initiating the insolvency process, shall pass an order for declaring a moratorium and cause a Public Announcement in the IBC Process of the initiation of CIRP and call for submission of claims under section 15.Â
2.1. Section 15 of the IBC:
The Public Announcement in the IBC Process should comply with the contents of section 15 of IBC, which lists the information to be included in the Public Announcement in the IBC Process, and the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (hereon forward known as “the Regulations, 2016”)
2.2. Who is Responsible for the Announcement
Regulation 6 of the Regulations, 2016 states that the insolvency professional has to make the Public Announcement in the IBC Process on his appointment as an interim resolution professional (IRP).
Contents of the Announcement
Section 15(1) of the IBC lists the contents of the Public Announcement in the IBC Processand as per Regulation 6(2)(a) has to be filed in Form A of the Schedule of Regulations, 2016:
- name and address of the corporate debtor under the corporate insolvency resolution process
- Â name of the authority with which the corporate debtor is incorporated or registered
- Â the last date for submission of claims
- Â details of the interim resolution professional who shall be vested with the management of the corporate debtor and be responsible for receiving claims
- Â penalties for false or misleading claims
- the date on which the corporate insolvency resolution process shall close
Timing and Modes of Public Announcement in the IBC Process
Regulation 6 under Chapter III of the Regulations, 2016 specifies the timing and modes of public announcement:
4.1. Timing Requirements: The insolvency professional shall make the public announcement not later than 3 days from the date of his appointment as an IRP as per Regulation 6(1) of the Regulations, 2016. The Public Announcement in the IBC Process should also provide for the last date for submission of proof of claims, which shall be 14 days from the date of appointment of IRP.
4.2. Modes of Announcement: According to Regulation 6(2)(b)(i), a Public Announcement in the IBC Process has to be published in one English and one regional language newspaper with wide circulation at the location of the registered office and principal office of the corporate debtor and any other location where in the opinion of the IRP, the corporate debtor conducts material business operations. It has to be published on the corporate debtor’s website if the corporate debtor has a website and on the website designated by the Insolvency and Bankruptcy Board of India (IBBI).Â
4.3. Regional and National Reach: Publishing public announcements in both local and national newspapers is a strategy to ensure information reaches a wide range of stakeholders. Local newspapers have a specific geographic area which helps in targeted communication to ensure that businesses are aware of the CIRP which the financial situation of the corporate debtor may directly impact. The publication in a national newspaper shows that the debtor adheres to be transparency of the IBC process.
Impact of Public Announcements on Stakeholders
5.1. Creditors: Public announcement notifies the creditors to submit their claims. By adhering to the IBC provisions and the Regulations, creditors can assert their rights in the resolution process.
5.2. Debtors and Employees: The public announcement includes the financial information and other relevant information about the corporate debtor and the resolution process. It is the formal step that marks the beginning of the CIRP and affects the debtor and their employees. Employees of the company undergoing CIRP are affected by the public announcement as they face employment loss and will need time to secure another one.
5.3. Public and Market Impact: Publishing the public announcement in the local and national newspapers provides the public information about the financial situation of the corporate debtor. These announcements must include accurate and updated information as it can influence investor confidence, affect stock prices, and impact the market perceptions of the debtor company.
Step-by-Step Process for Public Announcements in CIRP
Step 1: Appointment of IRP: As per section 13 of the IBC, the Adjudicating Authority appoints an IRP on the insolvency commencement date. The IRP oversees the process of public announcement, such as including the necessary contents in the announcement and ensuring that the publication is made within the correct timeline under Regulation 6 and includes the last day for submission of the proof of claims.
Step 2: Drafting the Announcement: The information to be included in the public announcement under section 15(1) of the IBC. The IRP prepares the announcements and ensures that accurate information is included in the publication as per the IBC provisions.
Step 3: Publication in Newspapers and Official Channels: Regulation 6(2) of the Regulations, 2016 states that the public announcement should be published in English and in one regional language newspaper with wide circulation at the location of the registered office and principal office of the corporate debtor and any other location where it should be published in the IRP opinion, on the website of the corporate debtor, and the IBBI website.
Step 4: Inviting Claims and Documentation: Under Section 15 of the IBC and Regulation 6 of the Regulations, 2016, the public announcement has the main purpose of inviting creditor claims within the prescribed timelines. The IRP has the role of verifying the submitted documents to guarantee that the information published is accurate and correctly informs the stakeholders and the public about the corporate debtor’s current situation.
Step 5: Deadline Compliance and Final Documentation: Regulation 6 provides strict deadlines for the IRP to make the public announcement and the last day of submitting the proof of claims. To ensure the fairness, transparency, and efficiency of the CIRP the IRP, the debtor, its creditors, and other stakeholders need to adhere to the deadlines and provide proper documentation throughout the announcement process.
Public Announcement vs. Moratorium Declaration
After admitting the application of initiating the CIRP, the Adjudicating Authority passes an order declaring a moratorium and causes public announcement which also calls for submission of proof of claims. It is crucial to understand both these periods to ensure the efficiency of the IBC process.
7.1. Definition of Moratorium: The Adjudicating Authority passes an order on the insolvency commencement date to declare a moratorium for prohibiting certain acts during this period. It essentially halts legal proceedings against the debtor during CIRP. The moratorium ends once the resolution plan is accepted or rejected by the Adjudicating Authority or when the liquidation petition is filed by the IRP or resolution professional.
7.2. Relation to Public Announcements: The declaration of a moratorium and the public announcement work in tandem to protect the debtor while inviting claims from creditors.
Impact on Creditors and Legal Proceedings
Under section 14(1)(a) of the IBC, moratorium prohibits the institution of suits, a continuation of pending suits, proceedings against the corporate debtor, or execution of any judgment, decree, or order in any court of law, tribunal, or other authority. Therefore, a moratorium affects the creditors’ ability to initiate any new legal actions against the corporate debtor. In place of this, the creditors can participate in the resolution process.
Common Challenges and Mistakes in Public Announcements
9.1. Delayed Announcements: The IRP has the responsibility of making the public announcement. If the IRP delays issuing a public announcement delays the entire IBC process. It may result in not providing the relevant stakeholders with necessary information in a timely manner and they miss their opportunity to participate in the insolvency process.
9.2. Incomplete or Incorrect Information: Providing incomplete or incorrect information about the corporate debtor, such as the financial status, their assets or liabilities, etc. can mislead the creditors and affect their decision on submission of claims. Hence, it is important to submit accurate and updated details.
9.3. Misinterpretation of Timelines: It is a common error to misinterpret the deadlines in the CIRP. For instance, the term “immediately”, means not later than 3 days from the date of the IRP appointment under Regulation 6(1), which may be interpreted as 3 days after the IRP appointment, hence delaying the public announcement and hindering certain creditors in participating in the resolution process. The last date for submission of proof of claims is 14 days from the date of the IRP, if understood differently, affects the claims submission of the creditors. Not following the prescribed timeline under the IBC and the Regulations, 2016 set by the IBBI for public announcements can lead to further legal issues, such as delayed resolution process, legal disputes, and low creditor participation.
Best Practices for Effective Public Announcements
The insolvency professional should be made within 3 days of their appointment as an interim resolution professional with the required information provided under section 15 of the IBC. As per Regulation 6, the announcement should be published in multiple locations, local and national newspapers, at least one in English and one in the regional language newspaper with wide circulation. The main objective of such a public announcement is to inform the relevant stakeholders about the financial duress of the corporate debtor. The public announcement needs to be clear and include precise information to promote creditor participation and ensure transparency during the CIRP.
Conclusion
Public announcements have an important role in maintaining the transparency of the resolution process. It also encourages the creditors to participate in the corporate insolvency resolution process by notifying potential creditors about the initiation process and inviting them to submit their claims. As per the provisions of the Insolvency and Bankruptcy Code, 2016 and the Regulations, 2016, a public announcement ensures that everyone has access to relevant information regarding the corporate debtor’s financial situation which facilitates informed decision-making within the Committee of Creditors.