Govt tweaks rules on bankrupt LLPs
Premium- The rules, effective 4 March, modified reporting requirements of LLPs in financial distress
The ministry of corporate affairs has amended the limited liability partnership (LLP) rules to address the concerns of entities facing bankruptcy proceedings. The rules, effective 4 March, modified reporting requirements of LLPs in financial distress.
The Limited Liability Partnership (Second Amendment) Rules 2022 primarily deals with solvency statements and certificate of truthfulness, which are part of the annual returns.
Hence, an LLP’s statement of solvency, which is required to be signed by a designated partner in charge of compliance, can be signed off by a resolution professional in case of a bankrupt entity, it said.
The new rules also cover the requirement of filing a certificate endorsing the truthfulness and correctness of annual returns of LLPs with sales of up to ₹5 crore, or partner contribution of up to ₹50 lakh.
In normal cases, the certificate is to be signed by a designated partner, other than the one who has signed the annual return. Designated partners have additional responsibility related to compliance requirements of an LLP, compared to other partners. In case of small LLPs facing bankruptcy, the certificate may be signed by a resolution professional or administrator, it added.
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The rules outlines the administrative changes LLPs undergo once bankruptcy proceedings are underway and the turnaround professional hired by lenders to take charge of the affairs of an LLP. Partners or shareholders will remain in control of a business so long as debt is serviced, but after a default, lenders get the upper hand in taking decisions under the Insolvency and Bankruptcy Code, including the right to take over the management and restructure the business.
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