ROLE OF INTERM RESOLUTION PROFESSIONAL AND RESOLUTION PROFESSIONAL BY – HARSH KUMAR
ROLE OF INTERM RESOLUTION
PROFESSIONAL AND RESOLUTION PROFESSIONAL
AUTHORED BY
– HARSH KUMAR (L20BLB019)
Insolvency resolution professionals
(IRPs) and resolution professionals (RPs) have crucial responsibilities in the
field of corporate insolvency and restructuring, which are explored in this
study. The study sheds light on the varying responsibilities and skill sets
required for these jobs by conducting a comprehensive review of global insolvency
frameworks and a comparative analysis of international practices.[1]
Key functions such as the creation of resolution strategies, the expert
management of stakeholder interactions, and the efficient navigating of
complicated legal and financial landscapes are discussed in this article, with
a primary focus on their involvement throughout the insolvency lifecycle. To
emphasize the adaptability of these positions in the face of shifting economic
conditions, technological developments, and regulatory frameworks, the study
explores into obstacles by drawing on case studies from a variety of
jurisdictions.[2]
In conclusion, the paper offers valuable insights and recommendations aimed at
bolstering the effectiveness of IRPs and RPs in the intricate domain of
corporate restructuring, positioning itself as a valuable resource for legal
practitioners, policymakers, academics, and professionals involved in
insolvency-related fields.
The earliest regulations addressing
insolvency and bankruptcy in India can be traced back to sections 23 and 24 of
the Government of India Act, 1800. After that, various pieces of legislation
were enacted, such as 1828's Statute 9, 1848's Indian Insolvency Act, 1909's
Presidency Towns Insolvency Act, and 1920's Provincial Insolvency Act. In the
post-independent era, the Companies Act of 1956 (CA, 1956) primarily governed
corporate insolvency, focusing on the 'winding up' process for companies.[3]
For the purpose of locating and
reviving sick industrial enterprises, the Sick Industrial enterprises Act
(SICA) was enacted in 1985. In contrast, protecting creditor rights became a
priority for policymakers in the 1990s and 2000s. Two laws, the Recovery of
Debts and Bankruptcy Act (1993) and the Securitization, Reconstruction, and
Enforcement of Security Interests Act (2002), were passed as a result. Overwhelming
litigation and subpar results for businesses seeking resolution and creditors
seeking recovery followed the proliferation of these laws.
In response to these issues, the
Bankruptcy Law Reforms Committee (BLRC) proposed the development of a single,
coherent body of law, which eventually became the Code.
The role of the Central
Government-appointed Official Liquidator (OL) was formalized in the Companies
Act of 1956. Since December 31, 2016, OLs have not been given any new matters
to handle thanks to the implementation of the Code and subsequent amendments to
the Companies Act of 2013. There were 4,865 companies in liquidation as of
October 31, 2018, with 92% of them being categorized as "winding up by the
Courts." A provisional or company liquidator appointed by the Tribunal
must be an Insolvency Professional (IP) registered with the Insolvency and
Bankruptcy Board of India (IBBI) in accordance with the Companies (Winding up)
Rules of 2020.
Both the BIFR and the Appellate
Authority for Industrial and Financial Reconstruction were established by the
Sick Industrial Companies Act. Experts managed early discovery of unhealthy
enterprises, and BIFR suggested corrective action. Cases previously heard by
the BIFR have been transferred to the National Company Law Tribunal (NCLT)
following the adoption of the Code.
Learning from past experiences and
international best practices, the BLRC suggested the formation of a cadre of
regulated experts to monitor and manage commercial affairs. These specialists, known
as Insolvency specialists (IPs), play a key role in assuring the adherence to
legal rules while boosting efficiency. The Code provides the criteria for an
IP, who can function as an Interim Resolution Professional (IRP), Resolution
Professional (RP), or Liquidator depending on the specific procedure they are
involved in.
An individual is deemed ineligible
for registration as an insolvency professional, as per Regulation 4 of the Insolvency
Professional Regulations, 2016. This precludes the following:
1. They are minors.
2. They lack permanent residency in
India.
3. The individual in question does not
possess the credentials and expertise that are specifically required per
Regulation 5 or Regulation 9 of the Insolvency Professional Regulations, 2016,
respectively.
4. A person has been found guilty by a
reputable court of law for an offense that carries a maximum penitentiary term
of six months or involves moral turpitude. It has been under five years since
the sentence was completed. Those whose sentences exceeded seven years are
rendered irrevocably ineligible.
5. They have submitted an application
for adjudication as an undischarged insolvent.
6. Their mental state has been deemed to
be defective.
7. Regarded as unsuitable and
inappropriate. In determining an individual's suitability and appropriate
status, the Board may take into account various factors including but not
limited to integrity, reputation, character, lack of convictions and restraint orders,
and competence, which encompasses financial solvency and net worth.
Those who satisfy the aforementioned
criteria and adhere to additional stipulations of the Insolvency and Bankruptcy
Code (IBC) are eligible for registration as Insolvency Professionals with the
Insolvency and Bankruptcy Board of India (IBBI). Interim Resolution
Professionals may be designated with the registration of insolvency
professionals.
In the event that a corporate debtor
or financial creditor files an application for the corporate insolvency
resolution process under section 10, or section 7 respectively, the resolution
professional named in the application shall be designated as the interim
resolution professional, on the condition that they do not have any pending
disciplinary proceedings (Section 16(2) of IBC).
In the event that the corporate
insolvency resolution process is instigated by an operational creditor, the
Adjudicating Authority (National Company Law Tribunal - NCLT) will refer the
matter to the Board for a recommendation if an interim resolution professional
is not proposed.
ii. In the event that a resolution
professional is proposed in accordance with section 9 of the IBC, they are
designated as the interim resolution professional, provided that disciplinary
proceedings are not pending (Section 16(3) of the IBC).
Section 16(1) mandates that an
Interim Resolution Professional (IRP) be appointed by the Adjudicating
Authority within a period of fourteen days starting from the date of insolvency
commencement.
Tenure of
Interim Resolution Professional:
The duration of the IRP remains in
effect until the resolution professional is appointed in accordance with
Section 22 (Section 16(5)).
Administration of Matters by an
Interim Resolution Expert:
A. As of the appointment date,
i.
The
IRP has the authority to handle the corporate debtor's affairs.
ii.
A
halt is placed on the authority of the board of directors or the partners.
iii. Managers and officers answer to the
IRP.
iv. When it comes to the accounts of
businesses in debt, financial institutions follow the IRP's directives.
B. Since the IRP has been given
management authority, it may do the following:
i. represent the
corporate debtor in its different roles.
ii. Sign legal papers like deeds and invoices.
iii. Look at books of account and electronic records.
iv. Check that the corporate
debtor is following all legal requirements.
The IRP is responsible for:
1.
Collecting
information on the business debtor's assets, finances, and activities.
2.
Determining
the financial condition, including corporate activities and financial payments
over the last two years.
3.
Receiving
and aggregating creditor claims.
4.
Constituting
a committee of creditors.
5.
Monitoring
and managing the corporate debtor's assets and activities until a resolution
expert is selected.
6.
Filing
relevant information with the information utility.
7.
Taking
possession and custody of assets over which the corporate debtor has ownership
rights, including physical and intangible assets, securities, and assets
subject to determination of ownership by a court or authority.
8.
Performing
additional tasks as required by the Board.
Professionals in insolvency law are a
savior for any business that is on the verge of insolvency.[7]
Bankruptcy is on the rise across the
world as a result of poor financial management by commercial organizations and
other factors.
Therefore, as part of the resolution
process, the insolvency professionals assume control of the failing company and
its financial creditors.
There has been a dramatic increase in
the need for insolvency administrators. Knowledge of current rules and
regulations is essential for success in the insolvency profession.[8]
An insolvency professional is a
person who is either registered with the Insolvency and Bankruptcy Board of
India (IBBI) or is enrolled with an IPA.
Insolvency Professionals are employed
by Insolvency Agencies and aid in the winding down of financially troubled
businesses, partnerships, sole proprietorships, and individuals.
They have been given the authority to
represent bankrupt businesses and people.
During a bankruptcy proceeding, an
insolvency expert is crucial in the sale of assets and other forms of
settlement.[9]
Any business that has filed with the
IBBI in accordance with Section 201 of the Insolvency Code of 2016 is
considered an insolvency professional agency.
These organizations play a
significant role in regulating the actions of insolvency professionals and fostering
their professional growth and success.
The bylaws of the insolvency agency
provide that its professional members must follow certain norms and
regulations.
In respect to complaints made under
section 217 of the Insolvency Code, IBBI exerts control over the Insolvency
Professional Agency and its professionals.
Following the implementation of
Article 204 of the Insolvency Code on November 15, 2016, the Insolvency
Professional Agency is responsible for the following:[10]
The essential responsibility of an
insolvency professional agency is to accept insolvency experts as members.
These agencies establish the bar for
professional behavior and ethics for its registered members.
The organization keeps an eye on the
welfare of its members and fights for their protection.
They also find out what the member is
complaining about and do something about it.
The agency conducts regular
performance reviews and has the right to suspend or cancel membership.
An insolvency professional's
principal function is to evaluate a company's or organization's financial
health.
The next stage is certain to go off
without a hitch as soon as this one is finished.
After doing a thorough analysis, they
make a decision on whether or not the company can be saved.
In an effort to get insight into the
business and evaluate its financial standing.
Schedule official meetings with clients
and lenders to work on the settlement, and prepare in advance.
Another crucial duty is to confirm
and verify the claims of creditors in light of the available funds.
When carrying out a successful
liquidation of an individual or a business, it is imperative that the assets be
sold at auction.
Once liquidation expenses are
covered, the leftover money can be used for fund distribution.
After doing research, you should
submit a report to the National Company Law Tribunal that includes the
following details:
The insolvency professional commences
the process after presenting to the agency within 75 days a thorough plan and
procedure for the liquidation of assets.
While the operation is still running,
create a thorough report.
Comprehensive details on the
disposition of assets In order to keep in touch with debtors and creditors and
share relevant data with them Document the end of the dissolution procedure for
the organization.
How to
Choose the Right Insolvency Practitioner
Before selecting the appropriate
insolvency practitioner, the following factors must be taken into account:[12]
1. The practitioner must possess a valid license.
Many of the duties required for
insolvency procedures can only be performed by licensed professionals;
therefore, the insolvency practitioner's license is crucial.
For instance, fulfilling the
responsibilities of an administrator, liquidator, or overseer of a Company
Voluntary Arrangement.
2. Experience should be possessed by the practitioner.
A prospective insolvency practitioner
that one is considering hiring should be the subject of an initial consultation
or conversation.
They ought to inquire about their
level of experience and training in handling analogous situations or
undertaking analogous actions.
If one is unconvinced that the
practitioners have sufficient expertise to handle the situation, they may
reevaluate their choice.
3. The Practitioner Must Instill Confidence
Regardless of the course of action
selected with respect to the business, the forthcoming period will undoubtedly
be eventful and arduous.
Because one may be required to work
with the insolvency practitioner for an extended period of time, it is vital to
have confidence in them.
Insolvency practitioners have
fiduciary responsibilities that include conducting themselves proficiently and
ethically; however, prior to appointing them, one should have confidence in
their ability to work harmoniously.
4. Fees for the Practitioner
In order to obtain an understanding
of the fees associated with the proposed course of action for the organization,
it is advisable to consult with several insolvency experts.
Numerous will offer an initial
consultation at no cost and with no commitment. The fees and charges should be
made explicit in this.
Qualification
and Experience Needed to Become an Insolvency Professional
Registration with the Insolvency
Professional agency is a prerequisite for all applicants. The candidacy for
registration as an insolvency professional requires the possession of the
subsequent credentials and experience:
A successful completion of either the
National Insolvency Examination or the Limited Insolvency Examination is
mandatory. To qualify for the latter, candidates must possess 15 years of
managerial experience subsequent to obtaining a Bachelor's degree from a
legally recognized or founded university.
Or possesses the following
credentials and has passed the Limited Insolvency Examination: ten years of
experience; membership in the Institute of Chartered Accountants of India as a
chartered accountant; membership in the Institute of Company Secretaries of
India as a company secretary; membership in the Institute of Cost Accountants
of India as a cost accountant; or registration as an advocate with a Bar
Council.
The burden experienced by IPs
significantly impacts the adherence to the time-bound resolution process.
Although concerns have been raised regarding the excessive caseloads of IPs,
deliberations are currently in progress to tackle this matter. The fees of IPs
are obligated to be disclosed, thereby exposing the fact that the mean earnings
per assignment differ according to the position: Rs. 10.2 lakh for a
Liquidator, Rs. 5.20 lakh for an Interim Resolution Professional (IRP), and Rs.
31.6 lakh for a Resolution Professional (RP). Male intellectual property (IP)
professionals earn a substantial salary premium in comparison to their female
counterparts.
Challenges
and Suggestions
IPs confront difficulties include the
requirement for collaboration from the previous management and personnel of the
corporate debtor and the lack of transparency regarding variables impacting IP
recommendations. There is a growing demand for test and registration systems
that can support the increasing expertise in insolvency processes. Appointment
guidelines, openness, and possible changes to the examination method (with an
emphasis on scenario analysis and case studies) are all proposed.
IPs in India will need to specialize
their services as the Code continues to grow to take advantage of the
opportunities presented by the country's changing bankruptcy law.
CONCLUSION
Insolvency resolution professionals
(IRPs) and resolution professionals (RPs) have crucial responsibilities in the
field of corporate insolvency and restructuring, which are explored at length
in this study. The study provides a global perspective by carefully analyzing
international insolvency frameworks and delves into the complexities of these
professional roles,[13]
highlighting crucial tasks such as developing resolution plans, overseeing
stakeholder communications, and negotiating complex legal landscapes. By
analyzing problems via worldwide case studies, the research underlines the
dynamic character of these jobs in responding to economic, technological, and
regulatory changes. In its last section, the paper offers useful insights and
recommendations that establish it as an indispensable resource for lawyers,
policymakers, scholars, and professionals working in insolvency. The background
offered, outlining the development of insolvency legislation in India, prepares
the reader for the modern legal framework, especially the revolutionary change
from the Companies Act of 1956 to the Insolvency and Bankruptcy Code.[14]
To better appreciate the critical role that Interim Resolution Professionals
(IRPs) play in the early phases of the insolvency resolution process, their
functions, eligibility requirements, and obligations have been spelled out in
detail. A thorough comprehension of the insolvency environment is aided by an
examination of the duties and responsibilities of Insolvency Professionals
(IPs) and advice on how to choose the most suitable practitioner. The study
also addresses issues like workload and gender pay inequalities while providing
insight into the education and experience necessary to become an Insolvency
Professional. In addition, the report acknowledges new difficulties and
provides useful recommendations, stressing the importance of IPs adjusting and
specializing in light of the changing bankruptcy legislation in India. As a whole,
this study delves deeply and insightfully into the complicated world of
Insolvency and Resolution Professionals, shedding light on the intricate
dynamics of corporate insolvency and restructuring.
[1] ‘Quinquennial of IBC, 2016
(Preface)’ https://www.ibbi.gov.in/uploads/whatsnew/1d8b31fc65f7ac6f09a973be8f12f868.pdf
[2] Understanding the IBC: Key
Jurisprudence and Practical Considerations: A Handbook
https://ibbi.gov.in/uploads/whatsnew/e42fddce80e99d28b683a7e21c81110e.pdf
[3] Insolvency and Bankruptcy Board of
India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016
https://ibbi.gov.in/webadmin/pdf/legalframwork/2018/Apr/word%20copy%20updated%20upto%2001.04.2018%20CIRP%20Regulations%202018_2018-04-11%2016:12:10.pdf
[4] Insolvency and Bankruptcy Board of
India (Model ByeLaws and Governing Board of Insolvency Professional Agencies)
Regulations, 2016
[5] IBC Laws Editor, “Read
More: IBC Laws - Section 16 of IBC – Insolvency and Bankruptcy Code,
2016 : Appointment and Tenure of Interim Resolution Professional” (IBC
Laws, July 1, 2018) <https://ibclaw.in/section-16-appointment-and-tenure-of-interim-resolution-professional/>.
[6] Anuj Jain Interim Resolution
Professional for Jaypee Infratech Limited v. Axis Bank Limited 2020(8) SCC 401
[7] India’s bankruptcy resolution
professionals are under siege’
https://www.livemint.com/news/india/why-insolvency-pros-are-living-on-the-edge-11617894698411.html
[8] Sengupta Rajeswari,
Sharma Anjali and Thomas Susan (2016), “Evolution of the insolvency
framework for non-financial firms in India”, Working Paper, Indira Gandhi
Institute of Development Research, June.
[9] Jaypee Kensington Boulevard
Apartments Welfare Association v. NBCC (India) Ltd 2021(5) SCC 624
[10] Jaypee Kensington Boulevard
Apartments Welfare AssociationD,K.Prahlada Rao, Role & Responsibility of
Insolvency Professionals Under The CODE-An Analysis Vol 47, No 03,
C.S.T.J.F.C.P., 124, 21 (2017)v. NBCC (India) Ltd 2021(5) SCC 624
[11] Iyer, Vijaykumar and Sood,
Abhishek (2019): ‘Role of Resolution Professionals’, Insolvency and Bankruptcy
Code: A Miscellany of Perspectives, IBBI.
[12] S. Rajendran & S. Srinivasan,
Practical Issues Posing Challenges to the Insolvency Professionals – Does the
Code Show the Road Ahead Vol 47, No 09, C.S.T.J.F.C.P., 152, 56-58 (2017)
[13]
“Interim Resolution Professional in CIRP” (S.S. Rana & Co.)
<https://ssrana.in/litigation/insolvency-and-bankruptcy/resolution-professional-in-cirp/>
[14] K Delaney, B Carruthers, T
Halliday Rescuing Business: The Making of Corporate Bankruptcy Law in England
and the United States Social Forces , volume 78 , issue 2 Posted: 1999