Preparation of Information Memorandum under Section 29 IBC

The Insolvency and Bankruptcy Code, 2016 (IBC) was introduced to consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms, and individuals in a time-bound manner. Its primary objective is to ensure the maximisation of value of assets, promote entrepreneurship, enhance the availability of credit, and balance the interests of all stakeholders.

Once an application under section 7, 9, or 10 of the IBC is admitted by the National Company Law Tribunal (NCLT), an Insolvency Professional (IP) is appointed. After such appointment, the IP assumes control over the management of the corporate debtor and ensures that it continues to function as a going concern. One of the most important tasks of the Resolution Professional (RP) during the Corporate Insolvency Resolution Process (CIRP) is to collate claims, manage the business, and invite resolution plans from prospective resolution applicants.

To enable resolution applicants to prepare viable and effective resolution plans, the Code imposes a duty on the RP to prepare a detailed document containing all relevant information of the corporate debtor — known as the Information Memorandum (IM).

Meaning and Objective of Information Memorandum

The term “Information Memorandum” is defined under section 5(10) of the IBC as:

“Information Memorandum means a memorandum prepared by the Resolution Professional under sub-section (1) of section 29.”

Section 29(1) mandates that the RP shall prepare the information memorandum in such form and manner, containing such relevant information as may be specified by the Insolvency and Bankruptcy Board of India (IBBI). The objective of preparing this document is to assist resolution applicants in formulating a feasible and effective resolution plan for the revival of the corporate debtor.

In essence, the information memorandum serves as a comprehensive dossier on the corporate debtor, detailing its assets, liabilities, financial position, litigation, guarantees, and business performance. It ensures transparency and provides all the critical information necessary for prospective resolution applicants to evaluate the debtor’s position and propose a resolution plan accordingly.

Statutory Framework Governing Preparation of Information Memorandum under Section 29 IBC

The preparation and sharing of the information memorandum is primarily governed by Section 29 of the IBC read with Regulation 36 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

Section 29 of the IBC

Section 29(1) obliges the resolution professional to prepare the information memorandum containing relevant information in the manner prescribed by the IBBI.

Section 29(2) provides that the resolution professional shall provide access to all relevant information to the resolution applicant in physical and electronic form, only after the applicant undertakes:

1. To comply with the laws relating to confidentiality and insider trading;
2. To protect any intellectual property of the corporate debtor it may have access to; and
3. Not to share the relevant information with third parties unless the above conditions are complied with.

The Explanation to section 29 defines relevant information as the information required by the resolution applicant to make a resolution plan, which includes the financial position of the corporate debtor, details of disputes, and any other matter as may be specified.

Role and Duty of the Resolution Professional in Preparation of Information Memorandum under Section 29 IBC

The Resolution Professional plays a vital role in ensuring that the information memorandum is accurate, comprehensive, and timely prepared.

Under section 25(2)(g) of the IBC, it is the duty of the RP to prepare the information memorandum in such form and manner containing such relevant information as may be specified by the Board. The RP is also responsible for taking custody and control of all the assets and records of the corporate debtor, protecting and preserving its value, and ensuring that the business continues as a going concern.

The RP must therefore collect all relevant data, financial records, and operational details to assess the viability of the corporate debtor’s business and present them systematically in the information memorandum.

The Bankruptcy Law Reforms Committee (BLRC) Report, in paragraph 5.3.2, emphasised that the RP must provide the most updated and accurate information about the entity and ensure it is readily available for those interested in submitting resolution plans.

To assist professionals, the IBBI has also released a specimen format through its press release dated 20 November 2018 (Press Release No. IBBI/PR/2018/33), providing guidance on the kind of information that should be included in an information memorandum.

Contents of the Information Memorandum

Regulation 36(2) of the CIRP Regulations specifies the contents of an information memorandum. It mandates that the information memorandum must highlight the key selling propositions of the corporate debtor and contain comprehensive details, including the following:

1. Assets and Liabilities: Description of all assets and liabilities, including contingent liabilities, as on the insolvency commencement date. The description should include details such as date of acquisition, cost, remaining useful life, identification number, depreciation charged, book value, geographical location, and any other relevant details.
   
2. Financial Statements: The latest annual financial statements, along with audited financial statements for the last two financial years and provisional financial statements for the current financial year made up to a date not earlier than fourteen days from the date of the application.
   
3. List of Creditors: Names of creditors, amounts claimed, amounts admitted, and details of any security interests in respect of such claims.
   
4. Related Party Transactions: Particulars of debts due from or to the corporate debtor with respect to related parties.
   
5. Guarantees: Details of guarantees provided in relation to the debts of the corporate debtor, specifying which guarantors are related parties.
   
6. Members and Shareholders: Names and addresses of members or partners holding at least one per cent stake in the corporate debtor, along with the size of their holdings.
   
7. Litigation and Investigations: Details of all material litigations and any ongoing investigations or proceedings initiated by government or statutory authorities.
   
8. Employees and Workmen: Number of employees and workmen and the liabilities of the corporate debtor towards them.
   
9. Company Overview: A snapshot of business performance, key contracts, investment highlights, brought forward losses in tax returns, GST input credits, key employees, key customers, supply chain linkages, utility connections, and other pre-existing facilities that add value to the company as a going concern.
   
10. Industry Overview (where applicable): In case the corporate debtor has a book value of total assets exceeding ₹100 crore as per the last available financial statements, details of business evolution, industry overview, and key growth drivers must be included.
    
11. Other Relevant Information: Any additional information that the resolution professional deems relevant for the Committee of Creditors (CoC).

Confidentiality Obligations

Since the information memorandum contains sensitive business and financial data, strict confidentiality is mandated under the IBC. Section 29(2) and Regulation 36(4) ensure that no unauthorised disclosure occurs.

Before sharing the information memorandum with members of the CoC or any resolution applicant, the RP must obtain an undertaking confirming that the recipient shall maintain confidentiality and shall not use the information to cause undue gain or loss to any person. The undertaking must also confirm compliance with confidentiality and insider trading laws.

These safeguards ensure that confidential business information, intellectual property, and financial data are not misused by competitors or other parties.

Timeline for Preparation and Circulation of Information Memorandum

Regulation 36(1) of the CIRP Regulations provides that the RP shall submit the information memorandum to each member of the CoC in electronic form within two weeks of his appointment, but not later than the ninety-fifth day from the insolvency commencement date.

This timeline ensures that the CIRP progresses efficiently, providing sufficient time for CoC members and resolution applicants to assess the corporate debtor’s condition and formulate resolution plans.

If the RP is not appointed in the first meeting of the CoC, the Interim Resolution Professional (IRP), acting as a deemed RP, is responsible for preparing and submitting the information memorandum within the same prescribed timeline, in accordance with Regulation 17(3).

Delays in submission of the information memorandum may hinder the resolution process and attract scrutiny from the IBBI.

Landmark Judgements on Information Memorandum

Indian courts and tribunals have dealt with several cases regarding the preparation and disclosure of information memorandum.

Ebix Singapore Private Limited v. Committee of Creditors of Educomp Solutions Ltd. (2021)

The Supreme Court emphasised that the RP has a duty to collect as much accurate information as possible and must clarify if certain details are incomplete or subject to change. The Court underlined the importance of transparency and accuracy in the information memorandum.

Kundan Care Products Ltd. v. Amit Gupta & Ors. (2022)

The Supreme Court reiterated that the RP must provide comprehensive information but cannot be expected to independently verify or reassess the technical or operational details of the corporate debtor beyond available records.

Kushal Ltd. v. Kartik Baldwa (2022)

The NCLAT observed that the term “relevant information” under section 29 covers all details required by resolution applicants to make an effective resolution plan. However, the RP’s duty is limited to providing information based on available records and reports, and any minor non-disclosure does not amount to fraudulent misrepresentation.

Bimalesh Bhardwaj v. Value Infratech India Pvt. Ltd. (2023) 

The NCLAT directed the IBBI to investigate a resolution professional who failed to perform duties diligently, including the timely preparation of an information memorandum. The order reiterated that preparing an information memorandum is a mandatory duty and any negligence may attract disciplinary action.

Compliance Requirements for Preparation of Information Memorandum under Section 29 IBC

The Resolution Professional must ensure compliance with the following while preparing and issuing the IM:

1. Undertaking of Confidentiality (Section 29(2)): The RP must obtain a written undertaking from CoC members and resolution applicants confirming confidentiality compliance before sharing the information memorandum.
2. Timely Disclosure (Regulation 40B): Within seven days of issuing the IM, the RP must file a disclosure in Form CIRP–3 on the IBBI-designated website.
3. Delay in Issuance (Regulation 40B(1A)): If the information memorandum is not issued within 51 days from the public announcement due to pending undertakings or other delays, the RP must file a disclosure in Form CIRP–7 explaining the reasons for delay.
4. Use of Available Records: Even if access to certain documents is restricted due to non-cooperation by the suspended management, the RP must use publicly available records (e.g., those filed under the Companies Act) to complete the information memorandum.
5. Accuracy and Verification: While the RP need not independently verify technical details, it must ensure that all data provided in the information memorandum is based on credible and updated sources.

Conclusion

The Information Memorandum is the backbone of the Corporate Insolvency Resolution Process. It bridges the information gap between the corporate debtor, creditors, and potential investors. The Resolution Professional carries a significant responsibility in ensuring that the information memorandum is accurate, comprehensive, and prepared within the stipulated timeline.

Through the IM, the entire insolvency process becomes transparent and structured, thereby facilitating fair competition among resolution applicants and promoting confidence in India’s insolvency framework.