This article is written by Sachi Ashok Bhiwgade, B.A.LLB (Hons.) student of Hidayatullah National Law University, Raipur. This article discusses the Role and Duties vested with Resolution Professional in Corporate Insolvency Resolution Process under the Insolvency and Bankruptcy Code, 2016.
Who is a Resolution Professional?
A Resolution Professional is a licensed professional who:
- Has qualified the Limited Insolvency Examination,
- Is enrolled with the Insolvency Resolution Agency,
- Is registered with the Board.
The Adjudicating Authority appoints the Resolution Professional who manages the entire process of insolvency and bankruptcy. According to the Code, “Resolution Professional” means an Insolvency Professional who conducts the insolvency resolution process and includes an interim resolution professional and takes necessary steps to revive the company. The Insolvency Professional is governed by specific legislation that they have to follow i.e., IBBI (Insolvency Professional) Regulation, 2016.
Appointment of the Resolution Professional
Before the appointment of a Resolution Professional (RP), an Interim Resolution Professional (IRP) is appointed until the constitution of the committee of creditors (CoC) and appointment of an RP. During the process of liquidation, the RP assumes the role of a Liquidator and in case of individual insolvency, he acts as a Bankruptcy Trustee. The IRP manages the affairs of the company until an RP is appointed. As per Section 22, within 7 days of the constitution of the CoC, its first meeting is held in which they decide whether to appoint the IRP as the Resolution Professional or to appoint another resolution professional. In case the Committee decides to appoint the IRP as the RP, they are required to communicate the same to the IRP, Corporate Debtor and the Adjudicating Authority. The CoC appoints the RP within 30 days from the date of commencement of the Corporate Insolvency Resolution Process.
Role of a Resolution Professional
The Resolution Professional plays a vital role in the Insolvency and Bankruptcy process. The Bankruptcy Law Reforms Committee (BLRC) in its final report also emphasized on the role of an RP which stated that “Insolvency professionals form a crucial pillar upon which rests the effective, timely functioning as well as credibility of the entire edifice of the insolvency and bankruptcy resolution process.”
Resolution Professional functions
Conducting of the Corporate Insolvency Resolution Process
As per Section 23, the Resolution professional conducts the entire Corporate Insolvency Resolution Process and manages the operations of the corporate debtor during the period of the CIR Process. Further, even after the expiry of the period of CIR, the RP continues to manage the operation until the order of the approved resolution plan or appointment of the liquidator is passed. He is also vested with the exercise of power and to perform the duties that are vested with the Interim Resolution Professional.
Management of the affairs of the corporate debtor
After the order for the commencement of CIR is passed, an insolvency professional is appointed who acts as an IRP by the Adjudicating Authority. As provided by Section 17, on and from the date from which the IRP is appointed he is vested with the management of the affairs of the corporate debtor. The control from the corporate debtor is now transferred to the IRP. The power of the Board of Directors of the corporate debtor also vests and is exercised by the IRP. For the purpose of managing the affairs of the corporate debtor by the IRP, the officers and managers of the corporate debtor are required to give access to the IRP of all the relevant documents, books of accounts, records, etc as may be required. This Section also makes it obligatory for the officers and managers of the corporate debtor to report to the IRP. The IRP acts and executes all the deeds, receipts, documents in the name and on behalf of the Corporate Debtor and takes all such action specified by the Board. However, the managing of the affairs of the corporate debtor does mean that he has to perform the day to day activities of the entity.
Taking over the control of the assets of the corporate debtor
For the purpose of the resolution, the control and custody of the assets from the corporate debtor is taken over by the resolution professional as per Section 18 (f). The NCLT, Mumbai Bench in the case of Goa Auto Accessories v. Suresh Saluja has held that to facilitate the Corporate Insolvency Resolution Process, the RP can take custody of the assets of the corporate debtor that forms the subject-matter of the litigation.
Constitutes the Committee of Creditors
To bring the Creditor together is one of the important tasks of the insolvency professional. After the collation of claims and determination of the position of the corporate debtor, the interim resolution professional constitutes the committee of creditors. The committee of creditors then decides whether to resolve the insolvency of the entity or to liquidate it. In its first meeting of the CoC appoints the resolution professional who then convenes and conducts the meetings of the committee. Further, as per Section 24(2), the resolution professional conducts all the meetings of the Committee of Creditors.
Management of the operations of the corporate debtor as a going concern
When the CoC approves the resolution plan, the entity continues as a going concern. The Insolvency Professional in case of a default manages the entity and its assets and runs the entity as a going concern. Section 20 mandates the IRP to preserve and protect the value of the property and to manage the operations of the corporate debtor as a going concern. The IRP or RP must do all such acts that is necessary for keeping the corporate debtor in a going concern phase.
Preparing the information memorandum
The Resolution Professional is required to make and submit the information memorandum in order to formulate a resolution plan. He is also required to provide all relevant information to the resolution applicant. Regulation 36(2) provides for the details to be contained in the information memorandum. Explanation to Section 29 mentions the meaning of the term ‘information memorandum’ to mean information which is required by the resolution applicant to make a resolution plan for a corporate debtor. It includes information relating to the financial position, disputes and any other matter in relation to a corporate debtor.
Examining the resolution plan
The resolution professional facilitates the resolution plan. As per Section 30, on the basis of the information memorandum prepared by the resolution professional the resolution applicant submits the resolution plan to the resolution professional.
The RP is required to examine each resolution plan submitted to him to ensure that each resolution plan has in the manner specified by the Board:
- Has provided for the priority of the payment of insolvency resolution process costs to the payment of other debts of the corporate debtor.
- Has provided for the payment of debts of the operational creditor not less than.
- Amount paid to be paid to such creditor in the event of liquidation under Section 53(1).
- Amount to be paid to such creditor if the amount is to be distributed as per the order of priority under section 53(1).
- Has provided for the payment of debts of the financial creditor (not voting in favour of the resolution plan) not less than the amount paid to such creditors in the event of liquidation of the corporate debtor as per section 53(1).
If the resolution confirms the above condition then, the resolution professional presents the resolution plan for the approval of the committee of creditors. If the committee approves the plan it has to do so by a vote of not less than 60% of the voting share of financial creditors. The approved resolution plan is then submitted to the Adjudicating Authority by the resolution professional.
The Adjudicating Authority if it is satisfied, approves the resolution plan by an order and such order will be binding to the corporate debtor, employees of the corporate debtor, members, creditors, guarantors and other stakeholders that are involved in the resolution plan. If the Adjudicating Authority is not satisfied, it may by order reject the resolution plan as per Section 31.
Duties and responsibilities of an Insolvency Professional
- To preserve, protect and monitor the assets of the corporate debtor.
- Collecting all the information of the assets, finances, and operations.
- To invite the prospective resolution applicant fulfilling the criteria prescribed by the CoC.
- Following the public announcement under section 13 and 15 to receive and collating of claims that are submitted by the creditors.
- Filling of information collected with the information utility.
- To represent himself and act on the behalf of the corporate debtor.
- To raise interim finances as per the limits prescribed by the CoC.
- Disclose the insolvency resolution process cost.
- Appointment of accountants, legal professionals, and other professionals.
- Receiving, verifying and maintaining an updated list of the claims.
- Presenting resolution plans before the CoC meeting.
- To submit the resolution plan to the Adjudicating Authority approved by the CoC.
- Any other such duty as specified by the Board.
Apart from the above mentioned, the RP is also required to follow a certain code of conduct provided by the IBBI regulation. The Adjudicating Authority in the case of ARC (India) Pvt. Ltd v Shivam Water Treaters Pvt Ltd held that a Resolution Professional discharges his/her duties as an officer of the Court and any non cooperation or non-compliance with the Court’s officer amounts to Contempt of Court.
Limitation on the resolution professional
Section 28 of the code places restrictions on the actions of the resolution professionals. It sets out certain actions that he cannot do during the corporate insolvency resolution process without the approval of the committee of creditors. In the ESIL v. Satish Kumar Gupta, the Court held that a resolution professional is only required to give his prima facie opinion to the Committee of Creditors that the requirement laid down by the law has been fulfilled. In Dinal Shah v. Bharti Defence Infrastructure Ltd, the NCLAT observed that in case of any misconduct by the RP, it shall be reported to the appropriate authority.
In the case of Swiss Ribbon Pvt. Ltd v. Union of India, the Supreme Court observed that the resolution professional is only a facilitator of the resolution process. He cannot act without the approval of the committee of creditors.
In the case of Arcelor Mittal India v Satish Kumar Gupta, the court observed that the role of an RP is only to examine and confirm that each resolution plan confirms to the requirement of section 30(2).” It further said that his role is administrative and not adjudicatory.
The Supreme Court in the case of ESIL observed that the RP is required to ensure that the resolution plan is complete before submitting it to the Committee of Creditors. It further observed that an RP not only manages the affairs of the corporate debtor as a going concern from the stage of admission of application under Section 7,9,10 till the approval of the plan by the Adjudicating Authority but is also a key person who appoints and convenes the meetings of the CoC who decides the resolution plan who decides upon the resolution plan.
The Resolution professional plays a very significant role for the efficient operations of the insolvency process. He has to perform a whole range of functions and duties that are vested in him. The primary responsibility of a resolution professional is to conduct the Corporate Insolvency Resolution Process with transparency. Besides, the Insolvency Professional is also required to possess the appropriate skills, knowledge, expertise to ensure that the proceedings are conducted in an effective manner and carry out the duties and responsibilities vested in him.
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