Veena Sivaramakrishnan Sumant Prashant February 17 2023 What is important about IUs? Shardul Amarchand Mangaldas & Co | Insolvency & Restructuring - India Veena Sivaramakrishnan, Sumant Prashant Insolvency & Restructuring IntroductionSource of delayCommentIntroductionInformation utilities (IUs) established under the Insolvency and Bankruptcy Code provide authenticated information about debt and default, which an adjudicating authority can rely on as evidence of money owed by the company facing insolvency.The intention is that the adjudicating authority should rely solely on the IU, and not the documents and records of the parties, in establishing facts such as credit given and/or default. As per the amendments in June 2022 to the Insolvency and Bankruptcy Board of India (IBBI) (Information Utilities) Regulations 2017, creditors should submit the details of default to the adjudicating authority to ensure that there is no delay in initiating resolution of the corporate debtor.Source of delayThe IBBI and the Ministry of Corporate Affairs have independently noted the delay in initiating corporate insolvency resolution processes (CIRPs), leading to the erosion and devaluation of assets of the corporate debtor.The IBBI felt that:information of debt or default should be streamlined;the current process of authenticating information should be improved;the information asymmetry among creditors should be reduced; andthe record of default should be submitted by both financial and operational creditors.The ministry, in its Report of the Insolvency Law Committee, published in May 2022, recommended that financial creditors should be mandated to submit IU records with the CIRP application, and the adjudicating authority should not ask for any other information to prove default.The amendments to the IU regulations in June 2022 mandated that, before filing a CIRP application, creditors should file information of default with the IU. To process this information for issuing record of default, the IU is required to provide information of default to the corporate debtor for authentication. If the corporate debtor fails to confirm the default after three reminders (sent at three-day intervals), the information is deemed to be authenticated. For financial creditors which are banks, the information can be recorded under two heads – authenticated or disputed. For other creditors, the information can be authenticated, disputed or deemed to be authenticated.Next, the IU should record the authentication of information of default and pass it to the creditors, parties and sureties.CommentThe requirement to submit a record of default held by IUs is surely a step in the right direction. It will ensure that applications to initiate CIRPs are either admitted or rejected in a time-bound manner.Creditors should take note of the changes before initiating CIRPs. It is worth considering that the debtors have the option to dispute the information and, given this, the adjudicating authority will have to rely on the documents and records available with the parties, leading to the authority adjudicating disputes over the default itself, which was never the intention. For further information on this topic please contact Veena Sivaramakrishnan or Sumant Prashant at Shardul Amarchand Mangaldas & Co by telephone (+91 11 4159 0700) or email ([email protected] or [email protected]). The Shardul Amarchand Mangaldas & Co website can be accessed at www.amsshardul.com.