On 15 November 2019, the Central Government notified the Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules, 2019 (FSP Rules).
The FSP Rules aim to provide a framework for insolvency and liquidation of systemically important financial service providers (FSPs) other than banks and are currently applicable to non-banking financial companies (NBFCs) with an asset size of INR 500 Crores (approx. USD 70 million) or more, as per a notification issued by the Ministry of Corporate Affairs on 18 November 2019.
The FSP Rules are intended to remain a valid arrangement until a comprehensive mechanism for financial resolution of banks and FSPs is enacted.
The key highlights of the FSP Rules are as follows:
- Corporate insolvency resolution process (CIRP) can be triggered by an application made by the appropriate financial regulator which will be dealt with in the same manner as an application filed by a financial creditor under the Insolvency and Bankruptcy Code 2016 (Code);
- For NBFCs to whom the FSP Rules apply, the appropriate regulator is the Reserve Bank of India (RBI);
- Insolvency and liquidation provisions of the Code shall apply mutatis mutandis to FSPs except for the provisions specifically provided for under the FSP Rules;
- An interim moratorium commences for FSPs from the date of filing of the application till its admission or rejection;
- Once an application under the CIRP is admitted, an administrator similar to an insolvency professional is to be appointed to assist the FSP;
- The relevant licenses required for the operation of the FSP will not be suspended during the interim moratorium and CIRP;
- For voluntary liquidation proceedings, the FSP is required to obtain prior permission of the appropriate regulator, currently being the RBI for FSPs which are NBFCs, before applying for voluntary liquidation;
- The administrator of the FSP must seek a no objection from the appropriate regulator regarding the proposed control/ management of the FSP after the approval of the resolution plan by the committee of creditors;
- The moratorium will not apply to any third-party assets including any funds, securities and other assets required to be held in trust by the FSP for the benefit of third parties.
The FSP Rules and the notification dated 18 November 2019 issued by the Ministry of Corporate Affairs can be accessed through the following links: