Tag Archives: Corporate Insolvency Resolution Process

Entities as Insolvency Professional!!

Can a hospital be registered as a doctor? Can a court be called a judge?

We respect collective and coordinated efforts. However, no Human Collective can replace the prime and primary element – Human.

The Insolvency Resolution Process is a collective effort under the leadership of the Insolvency Professional. He led his team from a tight rope wearing a crown of thorns.

There is no doubt. Insolvency Professionals need services and help. After getting a declaration of independence, he hires independent professionals like advocates, chartered accountants, company secretaries, and valuers. These professionals, as per Regulations, should not be related to significant stakeholders, including the Resolution Professional. While managing a stressed company as going concern, he hires CFO, CEO and other professionals and try not to continue with the old team which led that company into stress.

The Insolvency Professional also hire his own team like any other professional like doctors, Advocate or company Secretaries hire their qualified, semi-qualified, skilled and unskilled staff. Similar to any other professional, all payments to his team and staff members are made from the professional fee of Insolvency Professional.

My emphasis is the Insolvency Professional need a good team in which he has long-term faith and confidence. No doubt, the Insolvency Professional is as independent as his team is. But every Insolvency Professional, at least in his initial years, do not have the resources to build his team.

Presently, an Insolvency Professional (IP) may have services of the Insolvency Professional Entities (IPE) in which he holds a leading position. Still, these services should be on an arm’s length basis. This is on an Insolvency Professional whether he wants to join an Insolvency Professional Entities or not. Despite the growth, the concept of Insolvency Professional Entities is not much popular among Insolvency Professionals. Out of 140 Insolvency Professional Entities total of 44 have shut their shop. Their closure does not impact the insolvency resolution but the finance of the Regulators – 3 IPAs, the front-line regulator, and the IBBI, the principal regulator.

Unfortunately, most of the failed Insolvency Professional Entities failed as the team usually reports to the protagonist promotor of the Insolvency Professional Entities and fails to get the confidence of the other Insolvency Professionals in the entity.

With this background discussion, now I come to the Discussion Paper on enabling entities to become insolvency professionals dated 14 June 2022, issued by the Insolvency and Bankruptcy Board of India.

The Statement of Problem in this discussion paper has two noteworthy observations:

  1. Ensuring continued business operations of a stressed company is an onerous job, and it may not be possible for a single professional to take on the multi-task activities of the board of directors, along with other important insolvency resolution process functions, that too in a time-bound manner;
  2. To fulfil their duties under section 25 of the Code, the resolution professional tends to outsource his functions to other persons such as Insolvency Professional Entities, Process advisors etc. The supporting entities are often not under any strong regulatory framework. Accordingly, it is not possible to fix accountability on unregulated entities.

There is no possibility of disputing the first observation. Ensuring continued business operations of a stressed company and conducting insolvency resolution of a stressed company without any business operation is not possible for a single professional. They need a team.

Regarding second observation hereinabove mentioned, I have the following questions:

  1. Will the whole board of directors of the Insolvency Professional Entity replace the board of the stressed company?
  2. Will every person employed by the Insolvency Professional Entity comes under a strong regulatory framework?

My general reply is negative. However, if it is affirmative, it is affirmative also for the team of all persons hired or employed by any individual Insolvency Professional.

Permitting a company, limited liability partnership or registered partnership firm (hereinafter called Entities) as an Insolvency Professional does not facilitate the Insolvency Process beyond the existing possibilities. We assume economy of scale and joint efforts in the case of Entities as Insolvency professionals. Any legal entity is as good as the individuals behind it. These entities will manage by their promoter or Principal officers.

So, why not an Individual Insolvency Professional can have a proper setup? There should be no reason except for a lack of initial capital and regulatory support. Therefore, whatever facility regulators are willing to provide to these Entities should also be provided to Individual Insolvency Professionals. Further, Regulators should also facilitate the One Person Companies (OPC) of Insolvency Professionals.

I am publishing this on the blog for discussion purposes. I will submit my final thought with IBBI one or two days before the last date.  

Disclaimer: The writer is an Insolvency Professional, and his interest may impact the outcome of this discussion.

Aishwarya Mohan Gahrana, Company Secretary and Insolvency Professional

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The concept of the class of creditors took shape when thousands of home – buyers fought together up to the highest available courts (judicial and political) in India. 

The class of creditors does not means but includes home-buyers or real estate buyers. Class of creditors is a group of 10 or more financial creditors other than banks and financial institutions or trustees in financial securities or deposits. In practice, we often meet home-buyers or real-estate-buyers as the class of creditors. 

In case of CIRP – corporate insolvency resolution process, appointed interim resolution professional immediately after appointment by the Adjudicating Authority (National Company Law Tribunal), ascertain the existence of a class of creditors if any. If it seems that there is a class of creditors, the interim resolution professional identifies three insolvency professionals willing to act as an authorised representative of creditors in the class. 

Under the law, the authorised representative can receive up to Rs 25,000/- per meeting of the committee of creditors. Representing a class in a daylong meeting at such remuneration may seem a lucrative job, but a good authorised representative do much work for the class of creditors without remuneration – like queries received from any member of the class he is representing. These queries generate from a lack of financial knowledge, lack of understanding of the insolvency resolution process, market rumours on social media and speculative news published in responsible media. 

Once the interim resolution professional identifies three insolvency professionals as a candidate for the job of an authorised representative, he publishes by way of advertisement a public announcement inviting claims from creditors.

When the interims resolution professional received sufficient claims from creditors in the class, he will file an application for the appointment of the authorised representative. This application shall be filed within two days of verification of claim received within 14 days from the CIRP commencement date.

Please note, there is another provision that allows creditors to file claims till 90 days from the insolvency resolution commencement date, but claims filed after 14 days shall not be considered for the purpose of appointment of the authorised representative. 

Practically, it may not be possible to have an appointed authorised representative in the first meeting of the committee of creditors. Any delay in the appointment of the authorised representative for any class of creditors shall not affect the validity of any decision taken by the committee.

Once the authorised representative is appointed, the resolution professional shall provide a list of creditors in the class to the respective authorised representative appointed by the Adjudicating Authority.

The authorised representative shall use an electronic means of communication between the authorised representatives and the creditors in the class. In practice, the email address of the authorised representative may serve the purpose.

The authorised representative under law shall attend the meetings of the committee of creditors and vote on behalf of each financial creditor to the extent of his voting share. For the purpose of voting, the authorised representative shall rely on pre-instruction voting.

When the authorised representative receives a notice and agenda for the meeting from the resolution professional, he shall circulate the agenda to creditors in a class. He may seek their preliminary views on any item in the agenda to enable him to participate in the committee meeting effectively. Any creditor in the class may submit his preliminary views to the authorised representative within twenty-four hours. These preliminary views are not their voting instructions.

The authorised representative for a class of creditors shall cast his vote on behalf of all the financial creditors he represents in accordance with the decision taken by a vote of more than fifty per cent of the voting share of the financial creditors he represents, who have cast their vote. In a simple language, each class of creditors shall vote as its majority. This is a general majority rule for voting on behalf of a class of creditors. There is an exception to his majority rule.

For a vote to be cast in respect of an application under section 12A, the authorised representative shall cast his vote individually as per each instruction.

The Timelines:

Receipt of appointment order by interim resolution professional – Day zero;

Identifying three potential candidates for the job of an authorised representative – Day 1;

Draft public announcement and got it translated in other languages – Day 2;

Publication of the public announcement – Day 3;

First cut-off day to receive claims – Day 14;

Verification of claims received before first cut-off date – Day 21;

 Application for appointment of an authorised representative – Day 22