Mandatory Disclosure of Losses in Information Memorandum by the RP for the benefit of PRAs

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March 19, 2025

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Brief Overview:

IBBI through a recent circular has directed that all Insolvency Professionals shall include a dedicated section in the Information Memorandum explicitly detailing the carry forward of losses under the Income Tax Act, 1961.

This is done with the intention to provide PRAs with a more comprehensive understanding of the CD’s financials in order to develop a viable resolution plan.

Technical Details:

The Insolvency and Bankruptcy Board of India (IBBI) had amended Regulation 36 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (CIRP Regulations) to mandate the disclosure of carry forward of losses as per the Income Tax Act, 1961 (IT Act), in the Information Memorandum (IM).

Further, Insolvency Professionals (IPs) were also advised to ensure comprehensive capture of details related to carry forward losses and the disclosure thereof.

Upon review of recent Information Memorandum(s), IBBI has observed that disclosure of carry forward of losses by IPs need to be more robust and directed that the IM hereon shall include a dedicated section highlight the inter alia the following aspects:

(a) Quantum of carry forward losses available to the Corporate Debtor (CD);

(b) Breakdown of these losses under the specific heads of the IT Act;

(d) If no of losses available to the CD, the IM should explicitly specify the fact.

This enhanced disclosure framework is intended to provide Potential Resolution Applicants (PRAs) with comprehensive understanding of the CD’s financial position, enabling them to develop a more informed and viable resolution plan.

JC Takeaways:

1) IBBI mandates the Insolvency Professionals to disclose carrying forward of losses as per the IT Act in the IM.

2) Insolvency Professionals are to ensure comprehensive capturing of the details relating to carry forward losses and the disclosure thereof.

3) This enhanced disclosure framework intends to provide PRAs with comprehensive understanding of the CD’s financial position, and enabling them to develop a more informed and viable resolution plan.

For further details, please see:

https://ibbi.gov.in/uploads/legalframwork/6fb7768b385beefa146df2af2ff67a65.pdf

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