The Insolvency and Bankruptcy Board of India (IBBI) has asked insolvency professionals to examine signs that the Insolvency and Bankruptcy Code is being used for purposes other than resolving financial distress or liquidating a company. Its 9 September circular follows concerns raised by enforcement and regulatory agencies about proceedings used to avoid investigations, reduce tax liabilities or shelter assets from scrutiny.

The circular identifies circumstances requiring examination: debt acquired shortly before insolvency by a creditor other than a scheduled bank or public financial institution, which then dominates the creditors’ committee; repeated bidders or limited competition for the business; very low recoveries unsupported by proper valuation; and substantial transactions with connected entities despite little business activity. These indicators call for further enquiry. Where that enquiry provides reasonable grounds to suspect a fraudulent or malicious purpose, the insolvency professional must place the facts before the adjudicating tribunal.
 

Sources: IBBI circulars | Circular of 9 September: reproduced text