IM Disclosures: IBBI Puts Carry Forward Losses in the Spotlight

Setting the stage for more informed and viable resolution plans, the Insolvency and Bankruptcy Board of India (IBBI) has mandated the inclusion of a dedicated section in the information memorandum explicitly detailing the carry forward of losses under the Income-tax Act, 1961.

Regulation 36(2) of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (CIRP Regulations) outlines the key details about the corporate debtor to be included in the information memorandum. Clause (j) of this provision specifically addresses the company overview, including a snapshot of business performance, key contracts, investment highlights, and other factors which bring out the value of the company as a going concern, over and above its assets. These factors include brought forward losses in income tax returns, input credit of GST, and more. This requirement, introduced through an amendment to the CIRP Regulations, has been in effect since September 16, 2022.[1]

The necessity for such comprehensive disclosures became evident following a review of recent information memorandums, prompting a decisive move to enhance the framework. Consequently, insolvency professionals are now required to provide a dedicated section in the information memorandum that addresses the following aspects:

• The quantum of the carry forward losses available to the corporate debtor;
• A breakdown of these losses under specific heads as per the Income-tax Act, 1961;
• The applicable time limits for utilising these losses; and
• If no carry forward losses are available to the corporate debtor, the information memorandum should explicitly specify the fact.

This framework is expected to provide potential resolution applicants with a deeper understanding of the corporate debtor’s financial position and enable the development of more informed and viable resolution plans.

[1] IBBI (Insolvency Resolution Process for Corporate Persons) (Fourth Amendment) Regulations, 2022; available here.