The Insolvency and Bankruptcy Board of India (IBBI) has proposed making it mandatory for bidders of bankrupt companies to disclose their ultimate beneficial ownership, in a bid to prevent disqualified promoters or related parties from re-entering firms through backdoor routes and to ensure the genuine application of the ‘clean slate’ principle under the Insolvency and Bankruptcy Code (IBC).

Under the clean slate principle, enforced through Section 32A of the Insolvency and Bankruptcy Code (IBC), a stressed firm gets a fresh start after successful resolution. The provision grants immunity from prosecution for offences committed before insolvency proceedings, provided there is a bona fide change in management and control. “Effective implementation requires clear identification of persons who ultimately own or control the prospective resolution applicant,” the IBBI said in its paper.

This is “so benefit of the ‘clean slate’ principle is not misused,” IBBI said. The beneficial ownership statement proposed by the regulator will cover “details of all natural persons who ultimately own or control the PRA (prospective resolution applicant), together with the shareholding structure and jurisdiction of each intermediate entity.” Bidders have to submit an affidavit as well in a specified format, stating they are eligible or ineligible for benefit of Section 32A of IBC.

IBBI’s draft template for disclosure of beneficial ownership has been modelled on the regulatory framework prescribed by RBI under its updated Know Your Customer Direction. A company having a “controlling interest” (more than a 10% stake) in another firm directly or through one or more entities can be construed as a beneficial owner.

However, where the bidder is a listed entity, it can be exempted from furnishing granular shareholder details if sufficient public disclosures of its shareholding and control are already available under Sebi regulations, the Companies Act, or equivalent overseas regulatory frameworks.