Interim Finance during CIRP under Insolvency & Bankruptcy Code, 2016 (“IBC”)

Interim Finance is defined under Section 5 (15) of the IBC, 2016 which means

  • any financial debt raised by the resolution professional during the insolvency resolution process period; or
  • by the corporate debtor during the pre-packaged insolvency resolution process period, as the case may be; and
  • and such other debt as may be notified (The Central Govt. vide notification dated 18.03.2020 notifies a debt raised from the Special Window for Affordable and Middle-Income Housing Investment Fund I will be covered under Interim Finance).
  • (the expression “Special Window for Affordable and Middle-Income Housing Investment Fund I” shall mean the fund sponsored by the Central Government for providing priority debt financing for stalled housing projects, as an alternate investment fund and registered with the Securities and Exchange Board of India, established under sub-section (1) of section 3 of the Securities and Exchange Board of India Act, 1992 (15 of 1992), to provide financing for the completion of stalled housing projects that are in the affordable and middle-income housing sector.)

Why Interim Finance?

To manage the operations of the Corporate Debtor as a going concern the IRP under Section 20 of IBC, 2016, and RP under Section 25 of IBC, 2016 shall make every endeavor to protect and preserve the value of the property of the corporate debtor and manage the operations of the corporate debtor as a going concern.

For the above-stated purpose the IRP/RP can raise interim finance provided that no security interest shall be created over any encumbered property of the corporate debtor without the prior consent of the creditors whose debt is secured over such encumbered property.

 Further, the NCLAT in the Company Appeal (AT) (Ins.) No. 887 of 2019 Edelweiss Asset Reconstruction vs. Sai Regency Power Corporation held that the Value of a going concern is much more than a non-functional plant or concern.

Further, Hon’ble NCLAT is not convinced by the argument that amended Sub-Section (4) of Section 30 requires only Secured Financial Creditors to contribute towards interim finance and not Unsecured Financial Creditors. No such interpretation can be drawn. We will not interfere in the collective decision of COC in this regard.

Who will bear the cost of Interim Finance?

The amount of Interim Finance and the Cost incurred in raising such finance

  • shall constitute part of Insolvency Resolution Process Costs as defined under Section 5(13) of IBC, 2016 in the case of Corporate Insolvency Resolution Process (CIRP).
  • shall constitute the part of Pre-packaged Insolvency Resolution Process Costs as defined under Section 5(23)(C) of IBC, 2016 in the case of the Pre-Packaged Insolvency Resolution Process (PPIRP).

Process of Raising the Interim Finance?

Specifically, no process has been described under the provisions of IBC, 2016 to raise the interim finance, as the Section 28 of IBC, 2016 the approval of the Committee of Creditors will be required to raise any interim finance in excess of the amount as may be decided by the committee of creditors in their meeting.

Further, the reporting of the Interim Finance must be reported to the Insolvency and Bankruptcy Board of India (“IBBI”) in Form CIRP-6 within 7 days from the raising of Interim Finance.

In short, Interim Finance can be raised in such a manner as may be approved by the COC in the meeting with at least 66% of the voting shares.

Whether the Fees payable to the IRP/RP be paid from Interim Finance?

While looking for the answer, we can refer to Regulation 34(B)(5) of IBBI (CIRP) Regulations, 2016 wherein it is clearly demonstrated that the Fees payable to the IRP/RP may be paid from the funds, available with the corporate debtor, contributed by the applicant or members of the committee and/or raised by way of interim finance and shall be included in the insolvency resolution process cost.

 What if the Liquidation of CD commences after raising Interim Finance?

If we refer to Regulation 2(ea) of IBBI (Liquidation Process) Regulations, 2016 the Liquidation Cost includes interest on Interim Finance for a period of twelve months or for the period from the liquidation commencement date till repayment of interim finance, whichever is lower.

Whether the Interim Finance be raised during the Liquidation of CD?

As per the provisions of IBC, 2016 and other laws for the time being in force the Interim Finance cannot be raised once the Liquidation commences, as under Liquidation the Corporate Debtor is no more a going concern and Liquidation is merely the proceedings to windup the Corporate Debtor.



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