ROLE OF INSOLVENCY PROFESSIONALS IN CORPORATE INSOLVENCY RESOLUTION PROCESS
In the Indian legal framework, Insolvency Professionals (IPs) are a new category of professionals recognized under the Insolvency and Bankruptcy Code, 2016. (Code). An Insolvency Professional is someone who is registered with India’s Insolvency and Bankruptcy Board (IBBI). They are registered with an insolvency agency and are engaged in the dissolution of an insolvent person, company, limited liability partnership, or partnership. These specialists are authorized to act on behalf of such bankrupt individuals, businesses, and other entities. During a bankruptcy, insolvency experts are critical in liquidating the entity’s assets and other settlement activities. This practice has gained traction as a result of the government enforcing rigorous guidelines under the Insolvency and Bankruptcy Code. The Insolvency and Bankruptcy Board of India (IBBI) regulates them.
Insolvency resolution process
The Insolvency and Bankruptcy Board of India (IBBI) was established on October 1, 2016, in accordance with the Insolvency and Bankruptcy Code, 2016. (Code). It governs not just experts but also processes. It has regulatory control for insolvency professionals, associated agencies, and associated information utilities. Under the Code, not only it enacts but also enforces the rules of transactions such as corporate liquidation, insolvency resolution, and individual bankruptcy.
A petition for bankruptcy is filed with the adjudicating body (the NCLT in the case of corporate debtors) by either the financial or operational lenders, or by the debtor itself. The maximum amount of time allowed to accept or reject the plea is fourteen days. If the plea is accepted, the tribunal must appoint an Insolvency Resolution Professional (IRP) to develop a resolution plan within 180 days, which could be stretched upto 90 days, after which the court would institute the Corporate Insolvency Resolution Process. For the time being, the board of Directors is silent, and the promoters have no voice in the company’s management. If necessary, the Insolvency Resolution Professional might seek the cooperation of the company’s management for their day-to-day activities. If the CIRP is unable to reclaim the corporation, the liquidation procedure will begin.
Role of Insolvency Professional
3.1 Execution of the Insolvency Resolution Process for Corporations
According to Section 23, the Resolution professional controls the whole Corporate Insolvency Resolution Process and administers the corporate debtor’s activities mostly during the CIR Process. Furthermore, even after the CIR time has expired, the IP continues to monitor the operation till the decision approving the resolution plan or appointing the liquidator is passed. He also has the authority to use power and carry out the tasks of the Interim Resolution Professional.
3.2 Taking control of the corporate debtor’s assets
The insolvency professional, based on Section 18(f), assumes possession and custody of the debtor’s assets at the time of the resolution. In Goa Auto Accessories v. Suresh Saluja, the NCLT’s Mumbai Bench found that the Insolvency Professional may take the custody of corporate debtor’s assets to aid the Corporate Insolvency Resolution Process.
3.3 Moratorium Enforcement
According to section 14 of the Code, the Adjudicating Authority (AA) declares a moratorium on the insolvency beginning date, forbidding any new litigation or continuation of an existing litigation against the CD. This clause would allow for the termination of pending proceedings ‘against’ the CD. Nonetheless, it permits the Insolvency Professional to pursue concerns begun by the CD, as a successful settlement may benefit the CD.
Unavoidably, a CD with continuous activities and a broad reach will have several litigations. Additionally, it’s also been noted that, notwithstanding the moratorium, fresh actions and lawsuits against the CD are being brought in a variety of forums. One difficulty the Insolvency Professional confronts is that the moratorium is not automatically imposed. Individual regulatory bodies and courts must be notified of the need to impose a moratorium in each case. While enforcing the moratorium is a purely administrative matter, it takes labor and expense on the side of the RP that may be avoided. Having to make representations also increases the possibility of such litigations being pursued indefinitely. In a number of instances, the court with jurisdiction may determine that the moratorium may not apply to the particular case.
3.4 Information Memorandum
The Insolvency Professional is responsible for preparing and submitting an information memorandum in order to develop a resolution strategy. He is also expected to supply the resolution applicant with all factual details. Regulation 36(2) specifies the information that must be included in the information memorandum. The explanation to Section 29 defines the word ‘information memorandum’ as information that the resolution applicant needs in order to prepare a resolution plan for a corporate debtor. It comprises information on a corporate debtor’s financial status, litigation, and any other problem.
3.5 Constituting committee of creditors
Trying to bring the Creditors is a critical responsibility for the insolvency professional. After gathering claims and determining the corporate debtor’s situation, the interim professional establishes the committee of creditors (CoC). The creditors’ committee then determines whether to remedy the entity’s insolvency or liquidate it. The CoC gets to appoint the insolvency professional during its first meeting, who would then convene and conduct the committee’s sessions. Additionally, pursuant to Section 24(2), the insolvency professional presides over all Committee of Creditors meetings.
3.6 Examination of Resolution plan
The insolvency professional assists in the implementation of the resolution strategy. According to Section 30, the resolution applicant must submit the resolution plan to the resolution professional based on the information memorandum generated by the resolution professional.
The RP is obligated to analyze each resolution plan presented to him in order to verify that it includes, in the manner stipulated by the Board, the following:
- Has prioritized the payment of bankruptcy resolution process charges over the payment of the corporate debtor’s other debts.
- Has not less than provided again for payment of the operating creditor’s debts.
Amount payable to such creditor in the case of liquidation in accordance with Section 53 (1). Amount paid to such creditor if indeed the amount is now to be distributed in accordance with the order of priority established under section 53(1) – Has provided for the payment of the financial creditor’s debts (not voting in favor of the resolution plan) in an amount equal to or greater than the money paid to such creditors of the company of the corporate debtor’s liquidation pursuant to section 53 (1).
If the resolution verifies the preceding criterion, the resolution professional subsequently proposes the resolution plan to the committee of creditors for approval. If the committee adopts the proposal, it must do so by a vote of at least 60% of financial creditors with voting rights. The resolution expert next submits the agreed resolution plan to the Adjudicating Authority. If satisfied, the Adjudicating Authority accepts the resolution plan by order, which is binding on the corporate debtor, its workers, members, creditors, guarantors, and all parties participating in the resolution plan. If the Adjudicating Authority is not convinced, it may, pursuant to Section 31, reject the settlement plan by order.
Limitations and Relevant case laws
Section 28 of the law imposes limitations on the resolution professionals’ actions. It specifies some acts that he cannot take without the consent of the creditors’ committee throughout the corporate bankruptcy resolution procedure. In ESIL v. Satish Kumar Gupta, the Court concluded that insolvency professionals are merely necessary to provide a Committee of Creditors with a prima facie view that the statutory requirements have been met. The NCLAT in Dinal Shah v. Bharti Defence Infrastructure Ltd states that any misbehavior by the RP must be reported to the proper authorities.
The Supreme Court stated in Swiss Ribbon Pvt. Ltd v. Union of India that the insolvency resolution professional is merely a facilitator of the settlement process. He will be unable to act without the consent of the creditors’ committee.
In Arcelor Mittal India v Satish Kumar Gupta, it was stated that an RP’s job is to “review and ensure that each resolution plan complies with section 30(2).” Additionally, it stated that his duty is administrative in nature and not adjudicatory.
In ESIL, the Supreme Court stated that the IP must guarantee that the resolution plan is comprehensive before bringing it to the Committee of Creditors. Additionally, it was noted that an RP not only manages the corporate debtor’s affairs as a going concern from the time an application is admitted under Section 7,9,10 until the plan is approved by the Adjudicating Authority but is also a major actor who appoints and convenes meetings of the CoC that decides on the resolution plan.
In State Bank of India vs. Ram Dev International Ltd., the Hon’ble National Company Law Appellate Tribunal, New Delhi was asked to determine whether the proposed RP was ineligible on the basis that he’s been a member of the board of the erstwhile State Bank of Hyderabad, which merged with the State Bank of India (SBI), which is a member of the corporate committee of creditors. According to the NCLT, the aforementioned rendered the proposed IP incompetent for appointment as the corporate debtor’s IP. However, SBI stated before the NCLAT that the prospective IP is not on bank’s payroll and is not an employee – he is a member of a panel of attorneys that banks, Public Sector Undertakings, and Governments normally maintain and therefore cannot be viewed as an employee of the bank. After hearing the parties, the NCLAT stated that if an IP is employed as an advocate/company secretary/chartered accountant by one or more financial creditors, this cannot be used to reject the proposal since there’s no pending disciplinary proceeding against the RP or if it is established that the RP is an interested party because he or she is an employee or on the payroll of the financial creditor. In the current instance, the NCLAT found that the NCLT failed to examine the aforementioned circumstances and was compelled to approve his name as the corporate debtor’s registered representative.
As the majority of banks and other financial institutions seek to resolve bad loan situations that place a burden on their capacity and constitute a threat to their ledger performance. Today, there is a high need for intellectual property rights (i.e., Insolvency Resolution Professionals). Cost accountants, chartered accountants, and corporate secretaries are the best candidates for the position of insolvency professional. These insolvency professionals are expected not only to supervise the procedure, but also to manage the full insolvency resolution procedure for business organizations.
To conclude, an RP is in charge of the CD and the insolvency procedure. Additionally, the Code establishes certain obligations and obligations. Having stated that, one should be aware of the practical difficulties that may arise, that might or might not be explicitly addressed by the Code. An RP must overcome all of these obstacles in order to efficiently fulfil his responsibilities during the CIRP, utilizing the tools provided by the Code. There are no clear-cut solutions to practical problems, and an RP is frequently compelled to exercise his judgement.
- Insolvency and Bankruptcy Code, 2016