Managing Corporate Debtor under Resolution

My well criticized last post “Insolvency Professional ‘Non’ Entities” mentioned, “The Term “Insolvency Professional Entity” has no mention in the Insolvency and Bankruptcy Code, 2016. This is sole creation of anxieties of newly enrolled registered Insolvency Professionals reflected in Regulation 12 of the Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016.” Most insolvency professionals, except few like me, are anxious about managing corporate debtor as a going concern. Every worry has its solution.

How will an outsider manage understand corporate philosophy behind a corporate debtor and manage it without destroying its core values and profitability. Majority of common citizen views inability to pay huge interest as no profitability. It may be possible that promoters are dishonest up to satisfaction of our collective conscience of common citizens. It may be a completely non – working business plan or poor implementation by management. It may also be a case of outdated technology like analogue landline phone or black and white photographic films. In all these and other similar cases, insolvency professional have nothing to protect as business is in all probability shut down or about to be.

However, popular perception of common citizens is not a universal case.  Many corporate debtors stilling are going concerns. A genuine corporate debtor may have good business plan and strategy, profitability however with much longer gestation period and/or well functioning plant & machinery. Concerns expressed by industry and fear among inexperience insolvency professionals, as we all are in this profession, are about possible harm of prospects of corporate debtors to remain a going concern during or after resolution period.

These concerns were because of the provision of section 17 of the Insolvency and Bankruptcy Code about suspension of board of directors or management of corporate debtors and vesting of these powers to resolution professionals. Section 17 seems to presume early evolution of profession of insolvency professionals, establishment of market practices to have an experienced advisory penal and mutual understanding of concern parties. However, all these mechanism will take own time to develop.

Presently, there is good news on that side. Many corporate debtors expecting insolvency resolution process to be initiated by one or more financial creditors recently came out with innovative tool. Just before possible initiation of insolvency process executive directors have one step below board executive management positions. Under this distress arrangement Managing Directors may be a Chief Operative Officers and similarly other executive directors may strip off board positions to actual executive positions.

This exercise, though, may be a double edged sword. Day to day management shall remain with actual management of the corporate debtor subject to their reporting legally to insolvency professional. However, it may defeat purpose of suspension of board of corporate debtor which may be responsible to create such stress for corporate debtor. Whole thing may depend upon their cooperation with corporate insolvency resolution professional appointed by honourable National Company Law Tribunal. There are few questions, time may answer –

  • Will step down corporate management actually report to Insolvency professional?
  • Will insolvency professional remain natural and continue have confidence of committee of creditor?
  • Will honourable National Company Law Tribunal find this step down arrangement proper?

Yes, every question shall have different answer on case to case basis.


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