Navigating Corporate Insolvency: Balancing Constitutional Changes and Resolution Imperatives

[By Keshav Vyas]

The author is a student of National Law Institute University, Bhopal.

 

Introduction

The Memorandum of Association (MOA) and Articles of Association (AOA) are fundamental documents that outline the company’s objectives, scope of work, internal management, and rules. They form the foundation of a company’s constitution and are crucial for its functioning. The decision to modify the Memorandum of Association (MOA), Articles of Association (AOA), or other core constitutional documents during insolvency proceedings requires meticulous evaluation. While such changes could align with the Corporate Insolvency Resolution Process (CIRP) objectives and evolving business needs, they entail substantial risks. Amid resolution urgency, altering these documents might divert attention and resources from financial recovery. Regulatory complexities, potential delays, and the need for stakeholder consensus could impede CIRP progress. Deciding on this step demands understanding of the company’s context, stakeholder dynamics, and balancing immediate restructuring needs with long-term interests.

This research examines the procedural aspects and implications of modifying MOA, AOA, and other constitutional documents during CIRP for a corporate debtor. It analyzes the legal framework, challenges, and the delicate balance between restructuring and stakeholder interests. The study provides insights into navigating this complex situation within the CIRP framework, outlining the process for amending the documents in question.

Altering Corporate Debtor Documents During CIRP: Process & Recommendations:-

In the intricate landscape of corporate insolvency and restructuring, the alteration of foundational documents such as the Memorandum of Association (MOA), Articles of Association (AOA), and other constitutional documents of a corporate debtor holds a significant role. These documents outline the fundamental structure and guidelines governing the operations of a company. However, the question arises: what legal processes are involved in changing these crucial documents during the Corporate Insolvency Resolution Process (CIRP), and is such a step advisable in the midst of the insolvency proceedings?

As we go by the stated laws legal procedure to make changes in the MOA, AOA, or constitutional document of a company is governed by Section 13 of the Companies Act, 2013. According to this provision, the proposed changes must first be presented before the board of directors for their approval. Subsequently, an Extraordinary General Meeting (EGM) should be convened, and the proposed changes should be approved by the shareholders. Once the approval is obtained, the amended MOA, AOA, or constitutional document must be registered with the Registrar of Companies (ROC). This involves filing Form-14 along with all the necessary documents at the ROC office within 30 days of passing the special resolution.

To effectuate the amendments, Section 117 of the Companies Act, 2013 mandates the filing of Form MGT-14 (Filing of Resolutions and agreements to the Registrar under section 117) with the Registrar of Companies (ROC). The filing should be completed within 30 days of passing the special resolution and must include the following documents:

  1. Duly attested True Copies of the Special Resolutions, accompanied by the corresponding elucidatory documentation.
  2. A reproduction of the Meeting Notification dispatched to the shareholders, inclusive of all accompanying attachments.
  3. A printed rendition of the Amended Articles of Association.

Compliance with these requirements enables changes to be made in the MOA, AOA, or Constitutional Documents of the company during the CIRP.

But, it is important to note that during the Corporate Insolvency Resolution Process (CIRP), this legal procedure cannot be followed to make changes to the MOA, AOA, or constitutional document of the company. The CIRP process is focused on resolving the insolvency of the company within a specified time frame, and altering these foundational documents is generally not advisable or feasible during this process.

During CIRP

During the Corporate Insolvency Resolution Process (CIRP), the board of directors of the corporate debtor is suspended, and the powers vested in them are transferred to the Insolvency Resolution Professional (IRP) and subsequently to the Resolution Professional (RP) in accordance with Section 17(1)(b) of the Insolvency and Bankruptcy Code, 2016 (IBC).

Under such circumstances, it becomes crucial to consider amendments with great precaution  in the Memorandum of Association (MOA), Articles of Association (AOA), or Constitutional Document of the company. Section 28 of the IBC specifies actions that require prior approval from the Committee of Creditors (CoC), including changes in documents such as the AOA and amendments to the company’s capital structure. Therefore, any changes to these documents must receive approval from the CoC.

CIRP: RA’s Authority to Amend MOA/AOA/Constitutional Docs:-

As in the case of “Indian Bank [Financial Creditor] versus NSR Steels Private Limited [Corporate Debtor through Resolution Professional] 2018 SCC Online NCLT 25560” The authority has determined that the “Resolution Plan” submitted with the application complies with the requisites of Section 30(2) of the Insolvency and Bankruptcy Code, 2016, along with Regulations 37, 38, 38(1A), and 39 of the IBBI (CIRP) Regulations, 2016. It has been confirmed that the “Resolution Plan” does not contravene any provisions of Section 29A of IBC. Additionally, the Resolution Professional has certified that the “Resolution Plan” approved by the Committee of Creditors (CoCs) is in accordance with the relevant provisions of the I & B Code, 2016, and the associated regulations.

Given the unanimous approval of the “Resolution Plan” by the CoCs with a 100% voting share, it is now approved and binding upon the Corporate Debtor, its employees, members, creditors, guarantors, and all other stakeholders involved in the Resolution Plan, including the Resolution Applicant. Furthermore, Tribunal in the present case granted permission for amending the Memorandum of Association (MOA) and Articles of Association (AOA) and for filing the same with the Registrar of Companies (ROC) as required by the law.

Hence, the Resolution Applicant (RA) is empowered to make changes to the Memorandum of Association (MOA), Articles of Association (AOA), or Constitutional Documents of the company during the Corporate Insolvency Resolution Process (CIRP). This authority is granted to the RA upon the presentation and approval of their Resolution Plan by the Committee of Creditors (CoC) and in accordance with the requirements stipulated by the Insolvency and Bankruptcy Code, 2016 (IBC).

Upon meeting all the necessary requirements and receiving the requisite approvals, the RA may proceed to make amendments to the MOA, AOA, or Constitutional Documents. This action can be undertaken under the direction and order of the court overseeing the CIRP, as the court holds the authority to provide guidance and instructions for such changes.

Therefore, it is within the purview of the RA(Resolution Applicant), subject to complying with the IBC provisions, obtaining CoC approval, and adhering to court directives, to effectuate amendments in the MOA, AOA, or Constitutional Documents of the company during the CIRP.

After analyzing the process, it can be said a few particular justifications for why altering a corporate debtor’s MOA, AOA, or constitutional documents during CIRP is needed. In the realm of corporate law, critical company modifications include changing the company’s name, altering its core objectives, adjusting its authorized capital, relocating the registered office, and transforming its corporate structure. Each of these actions carries substantial legal implications, necessitating strict adherence to statutory requirements and regulations. Whether renaming the company, redefining its mission, adjusting its financial framework, changing its official address, or transitioning its corporate structure, meticulous compliance with the relevant legal procedures is essential to maintain the company’s integrity and meet legal obligations by following the prescribed legal procedure to amend particular document.

Conclusion and Suggestion

Changing the constitutional documents of a corporate debtor during the CIRP process is a complex decision with legal, stakeholder, and insolvency resolution implications. While possible with the CoC’s approval, caution is generally advisable. In other words, it is important to weigh the pros and cons carefully before making any changes to the company’s constitutional documents during CIRP. While it may be necessary to make changes in some cases such as alterations to the company’s name or registered office, modifications to the company’s objectives, adjustments in its share capital, shifts in the composition of its board of directors or management, and amendments to the company’s borrowing powers, it is generally best to avoid doing so unless there is a compelling reason to do so.

The CIRP process is designed to resolve a company’s insolvency within a certain timeframe, and changing the company’s foundational documents may not always be in line with this goal. Regulatory complexities, potential delays, and the need for stakeholder consensus can all slow down the CIRP process. Therefore, the decision to modify these documents should only be made if there is a strong need to do so and if it is clear how the changes will benefit the resolution process and all stakeholders involved.

It is crucial for all parties involved, including Resolution Applicants (RAs), to meticulously follow the legal framework, obtain the necessary approvals, and ensure that any proposed amendments are in line with the provisions of the Insolvency and Bankruptcy Code, 2016 (IBC). The ultimate goal should be a balanced approach that safeguards the interests of all stakeholders while facilitating the corporate restructuring and recovery process within the CIRP framework.

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