Tag Archives: Insolvency and Bankruptcy Board of India

DISCUSSION (PAPER) ON THE LIQUIDATION PROCESS


The Discussion Paper on Streamlining the Liquidation Process, dated 14 June 2022, issued by the Insolvency and Bankruptcy Board of India, is a well-intended step with some corrective measures.

Stakeholders’ Consultation Committee

Section 53 of the Insolvency and Bankruptcy Code, 2016, empowers the Liquidator to consult any stakeholder entitled to a distribution of proceeds. The Liquidation Regulations have already converted the Liquidator’s power to consult any stakeholders into a duty. Increasingly such consultation is binding on the Liquidator unless a contrary decision is well explained and reported. I welcome a consultation committee meeting to increase transparency and democratic decision-making.

The present discussion paper intends to facilitate the consultation at an early stage and remove discrepancies.

Proposal 1: In this regard, it is proposed that the CoC as constituted during CIRP on the basis of admitted claims shall function as SCC during liquidation process with the voting share of members of SCC being same as that in the CoC. The stakeholders who are part of CoC without voting rights will be part of SCC without voting rights. The Liquidator shall convene first meeting of SCC within seven days of liquidation commencement date.

Draft Regulation: “(1A) The committee of creditors under section 21 shall function as the consultation committee with same voting rights till its constitution under sub-regulation (1).

Provided the directors, partners and one representative of operational creditors, as referred in sub-section (3) of section 24, may attend the meetings, but shall not have any right to vote in such meetings”

“(2) The voting share of members of the consultation committee under sub-regulation (1) shall be proportionate to the share of payments they will receive in terms of Section 53 against their admitted claim during liquidation if the liquidation value is taken as the proceeds for sale.

Provided a secured creditor who has not relinquished their security interests under section 52 shall not be part of the consultation committee under regulation (1) or (1A), as the case may be.

Provided further, the representatives of stakeholders not having voting share in the consultation committee may attend the meetings, but shall not have any right to vote in such meetings”

I have one suggestion: the composition of this “Interim Stakeholders’ Consultation Committee” should be constituted by adjusting the composition per entitlement to a distribution of proceeds under Section 53. In addition, the voting powers of the Interim Stakeholders’ Consultation Committee and regular Stakeholders’ Consultation Committee should be aligned.

I suggest amendments in draft sub-regulations (1A) and (2) as under:

“(1A) The committee of creditors under section 21 shall function as the consultation committee with same voting rights till its constitution under sub-regulation (1).

“(2) The voting share of members of the consultation committee under sub-regulation (1) or (1A) shall be proportionate to the share of payments they will receive in terms of Section 53 against their admitted claim during liquidation if the liquidation value is taken as the proceeds for sale.

Proposal 2: The Liquidator shall record the reason of his decision contrary to the advice of the Stakeholders’ Consultation Committee in writing and forward the same to the Adjudicating Authority and the Board within five days.

This will increase the cost in the form of one more application before the Adjudicating Authority takes such a report on record. Further, it will reduce decisions based on the Liquidator’s commercial wisdom.

Proposal 3: A secured creditors shall intimate its decision regarding realisation or relinquishment of its security interest under section 52 of the Code, in the first meeting of the SCC (practically Interim SCC).

Draft Regulation: “(1) A secured creditor shall inform the Liquidator of its decision to relinquish its security interest to the liquidation estate or realise its security interest within seven days from the liquidation commencement date or in the first meeting of the consultation committee, whichever is later:

Provided that, where a secured creditor does not intimate its decision within seven days from the liquidation commencement date or in the first meeting of the consultation committee, whichever is later, the assets covered under the security interest shall be presumed to be part of the liquidation estate.”

This is a welcome step assuming the secured creditors have filed a claim in the CIRP and part of the Interim SCC). Such secured creditors have enough time to decide after the liquidation resolution and before the Liquidation order. I suggest the status quo in case of secured creditors who, for any reason, have not filed a claim in CIRP.

A second proviso may be added:

Provided also that a secured creditor, who have not filed its claim in the CIRP, shall inform the Liquidator of its decision to relinquish its security interest to the liquidation estate or realise its security interest, as the case may be, in Form C or Form D of Schedule II.”

Proposal 4: The Stakeholders’ Consultation Committee shall now empower to propose replacement of the Liquidator.

This will not be an appropriate step; First it is not in line with the Code; Second the SCC is only a consultative body and thirdly the SCC may replace a hard-working liquidator facilitating the incumbent Liquidator to have the fruit of the Liquidation.

The Code may be amended for the replacement of the Liquidator by the Adjudicating Authority when the Stakeholders’ Consultation Committee applies for such replacement with specific and justified reasons. The Liquidator should have a right to be heard before the SCC and the AA.

Proposal 5: SCC will fix/review the fee of the Liquidator in its first meeting.

I do not see a good reason for this proposal as present regulations adequately cover the fee aspect. In addition, this proposal will open endless negotiations between Liquidator and the stakeholders.

Compromise or Arrangement

Proposal 6: reduction of time period for the Compromise and Arrangement from 90 days to 30 days.

The discussion paper mentions that as of 31 May 2022, only eight liquidation processes have been closed by way of compromise or arrangement under section 230 of the Act, which took an average of 466 days for completion, and the Liquidator has realised only 87% of the liquidation value in these eight cases.

These eight cases are enough to say the reduction of this period may not change the situation as compromise and arrangement is otherwise a time-consuming process. Therefore, such a decrease in time shall promote the auction of the company as a going concern.

Valuation

Proposal 7: Where the Liquidator is of the opinion that fresh valuation is required, he shall seek advice of SCC for the same and such valuation may be considered for subsequent auctions.

This amendment is a welcome step.

Submission of Progress Reports and SCC Minutes

Proposal 8: The Liquidation Regulations may be amended to provide that the Liquidator shall submit the copy of progress reports, along with the minutes of the SCC, with the Board as and when the same is filed with AA. Further, the format of the Progress report, along with its contents, may be provided in detail by way of a Circular.

This proposal is just a procedural addition and may become an example of over governance.

Events-based timelines of Auction

Proposal 9 and 10: Frist auction notice within 45 days of the Liquidation Commencement Date, Auction on 35th day from the public notice and successive auction notice within 15 days of the failed auction.

These proposals may bring procedural uniformity and predictability to the process. However, the gap between successive auction notice and the auction may be reduced to 15-20 days from the proposed 35 days each time. Most of the participants in successive auctions usually working on their proposal/bids from the first or earlier auctions.

Same time, IBBI may also give more power to SCC to consider proposals for private sales provided such private sales should not hamper transparency in the process. Many potential buyers prefer private sale over auction purchases.

Designating Auction Portal

Proposal 11: The Liquidation Regulations may provide that the auction platforms of PDAs as empanelled from time to time may be exclusively designated for offering auction services.

I restrain myself from making any comment on this proposal.

Preparation of Asset Memorandum

Proposal 12: The Liquidator shall use the information provided in IM and valuation conducted during CIRP for preparation of Asset Memorandum and submit the same to AA within 30 days. Further, the Liquidator shall share the asset memorandum with the SCC after receiving confidentiality undertaking from the members of the SCC.

This proposal is good for transparency and proper advisory by the Stakeholders’ Consultation Committee.

Interim Finance availed during CIRP

Proposal 13: The liquidation cost shall include the interest on interim finance till the same is repaid.

This proposal is welcome.

Treatment of Avoidance Applications

Proposal 14: Before filing of an application of dissolution or closure of the process by Liquidator, SCC shall decide the manner in which proceedings in respect of avoidance transactions or fraudulent or wrongful trading, if any, will be pursued after closure of liquidation proceedings and the manner in which the proceeds, if any, from such proceedings shall be distributed. This decision shall be part of the final report filed before the AA.

I am not sure about the effectiveness of the proposal, but hopeful.

Claims

Proposal 15: The Liquidator shall consider the claims collated during the CIRP in respect of claimant who have not submitted their claim during liquidation.

This proposal is a welcome step, but it is always advisable for claimants to file fresh claims.

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

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.  

Aishwarya Mohan Gahrana, Company Secretary and Insolvency Professional

To Join my telegram Channel: https://t.me/AishMGhrana
To Join my telegram discussion group (only for CA/CS/CMA/IP/RV): https://t.me/AishMGhrana

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

To Join my telegram Channel: https://t.me/AishMGhrana
To Join my telegram discussion group (only for CA/CS/CMA/IP/RV): https://t.me/AishMGhrana

Proposed Fee and Expenses Mechanism for Resolution Professionals


The Discussion Paper on Remuneration of an Insolvency Professional, dated 9 June 2022, issued by the Insolvency and Bankruptcy Board of India, is a welcome step.

Remuneration and expenditure consume a significant chunk of time during meetings of the Committee of Creditors. After that, Resolution Professionals need to follow up for payment and reimbursement. Every Resolution Professional spent a good portion out of his pocket without a chance for interest payment. Higher the number of members in the Committee of Creditors, there are lesser chances of timely payment or reimbursement. The Discussion Paper rightly mentions litigations for professional fee payment and recovery of expense amount.

Since the first direction issued by the Hon’ble Adjudicating Authority in March 2018 for framing necessary regulations or guidelines regarding fixation of fees and resolution cost, the IBBI waited long for market maturity to settle this issue. Sadly, we lost the well-intentioned time due to the immaturity of the market.

The most unfortunate situation for Resolution Professional is a frequent request for postponement of the resolution for Professional fee at every meeting until the Resolution Professional exhausts most of his available (ideally less than 2500) working hours in the resolution process and loses negotiation power.

Now, we will discuss the proposed amendment.

[Proposed Regulation 34A(1)]: “The applicant, the Adjudicating Authority and the committee shall fix the fee to be paid to interim resolution professional or the resolution professional, as the case may be, under regulation 33 and 34, respectively, in accordance with the Schedule II.”

The reference of the Committee of Creditors is not required here. The Committee shall ratify and/or fix the remuneration under Proposed Regulation 34A(2).

I propose:

“The the applicant or the Adjudicating Authority shall fix or where the applicant or the Adjudicating Authority did not fix a fee, the minimum fee to be paid to the interim resolution professional or the resolution professional, as the case may be, under regulation 33, shall be in accordance with the Schedule II.”

[Proposed Regulation 34A(2)]: “The committee may ratify an amount higher than the amount fixed under clause (1) of Schedule II, as may be necessary.”

The Committee has two options. It may either ratify the fee fixed by the applicant or the Adjudicating Authority or itself fix the professional fee. The term “ratify” in the proposed draft does not convey the meaning “to fix a fee”. Here, the Committee should have the power to ratify or fix a fee.

I propose:

“The committee may ratify the fee fixed under sub-regulation (1) or may fix a fee to be paid to the interim resolution professional or the resolution professional, as the case may be, under regulation 34, , in accordance with the Schedule II.”

[Proposed Regulation 34A(3)]: An insolvency professional shall submit a statement towards estimate of his fee and fee of the resolution professional in the following manner:
(a) to the applicant immediately on his appointment as an interim resolution professional;
(b) to the Committee at its first meeting and thereafter till the appointment of the resolution professional; or
(c) to the Committee in the first meeting conducted immediately after his appointment as resolution professional.”

I understand this regulation firstly with plain reading and secondly reading with the discussion paper.

How can an Interim Resolution Professional submit a statement towards an estimate of the fee of yet to be appointed the Resolution Professional? At most, he can submit a statement of assuming his own appointment. The reasoning for this proposal is not clear. Usually, Insolvency Professionals give a well-drafted proposal estimating fee and other major expenses with their consent to act IRP or RP. There is no point in having it a recurring exercise.

If I understand it correctly, I propose:

“An insolvency professional shall submit a statement towards estimate of his fee in the following manner:
(a) to the applicant immediately on his appointment as an interim resolution professional;
(b) to the Committee at its first meeting after his appointment as an interim resolution professional; or
(c) to the Committee in the first meeting conducted immediately after his appointment as resolution professional.”

If I refer to the discussion paper again on this point, it talks about an estimate of fees and expenditure on the hiring of other professional and support providers. In such a case, I propose:

“An insolvency professional shall submit a statement towards an estimate of expenditure including his fee in the following manner:
(a) to the applicant immediately on his appointment as an interim resolution professional;
(b) to the Committee at its first meeting after his appointment as an interim resolution professional;
(c) to the Committee in the first meeting conducted immediately after his appointment as resolution professional; and
(d) to the Committee in the next meeting, where there is an upward change in the estimate of expenditure.”

Schedule II

The Discussion Paper proposed a three-tier structure:

  1. The fee of IP in CIRP –Fixed Fee (Minimum) Per Month;
  2. Performance Linked fee structure for timely completion of CIRP; and
  3. Performance-linked fee structure relating to Value Maximization

I have no view on the Minimum fee structure and welcome it as a good start.

The discussion paper suggests performance-linked fee structure for timely completion is a mandatory feature. However, Clause (2) of the Draft Schedule II makes this incentive optional by using the term “may”. I suggest the replacement term “may” with “shall”. This incentive is quite hard to earn but a good morale booster.

The discussion paper suggests an optional performance-linked fee structure relating to Value Maximization. I fear Insolvency Professionals will look for big value corporate debtors with good realization chances. However, best efforts should be incentivized and welcomed. I understand the Committee of Creditors may be the best judge on this.

The amount payable under clauses (2) and (3) is proposed to be capped at ₹ 5 Crore. I could not visualize much difference with or without this cap except for a few high-stake cases.  

Proposed Regulation 34B(1): An insolvency professional shall create an escrow account in the name of corporate debtor, in respect of his fee, and fee for the resolution professional, immediately on his appointment as an interim resolution professional.

I welcome the intention. However, there is a practical difficulty in complying with the Draft Regulation. If the Insolvency Professional opens an escrow account in the name of the Corporate Debtor, Banks asks PAN, Address Proof and Incorporation Documents of the Corporate Debtor. Most of the time, one or more of these documents are not readily available due to non-cooperation. IBBI and RBI should discuss waiver of these documentary requirements, and the order of initiation of corporate insolvency may suffice to open this account. Alternatively, the escrow account may be in the name of Interim Resolution Professional. On the appointment of any other person as Resolution Professional, the balance amount should be transferred to the escrow account of the Resolution Professional so appointed.

Secondly, the escrow account is not only for a fee but for expenses also.  

I am not suggesting any change in the draft regarding the name of the account due to a lack of my knowledge and will leave it for future developments. Except for this, I propose the following changes:

An insolvency professional shall create an escrow account, in respect of the estimate of expenditure, including Interim Resolution Professional and Resolution Professional, immediately on his appointment as an interim resolution professional.

Proposed Regulation 34B(2): The applicant or the Committee, as the case may be, shall deposit in the escrow account, or in alternate arrange for interim finance for depositing in the escrow account, the amount fixed under regulation 34A within 72 hours of submission of the statement by the insolvency professional.

I have nothing to discuss or suggest on this point.

Proposed Regulation 34B(3): The interim resolution professional or the resolution professional shall be eligible to withdraw the amount deposited in the escrow account towards his fee and shall provide the details of withdrawals to the Committee in the statement prepared under regulation 34A.

I again submit the escrow account is not only for a fee but for expenses also.

I propose:

The interim resolution professional or the resolution professional shall be eligible to withdraw the amount deposited in the escrow account towards his monthly fee approved by the Committee of Creditors and payment of other expenditures may be made as and when ratified by the Committee of Creditors.

Proposed Regulation 34B(4): The remaining amount, if any, in the escrow account shall be released upon approval of resolution plan under section 31 or passing of an order for liquidation of corporate debtor under section 33.”

I have nothing to discuss or suggest on this point.

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

To Join my telegram Channel: https://t.me/AishMGhrana
To Join my telegram discussion group (only for CA/CS/CMA/IP/RV): https://t.me/AishMGhrana

CBIC IBC Instruction needs to supplement


The Instruction No. 1083/04/2022-CX9 dated 23.05.2022 is a welcome step to the extent it came at least though it came late. This instruction and annexed Standard Operating Procedures (SOP) for the NCLT cases regarding filing claims by authorities under CBIC required to be filed under the Insolvency and Bankruptcy Code (IBC) took almost six years.

The Insolvency and Bankruptcy jurisprudence and environment are still in a nascent stage. This instruction is a minor step to remove one of the main hurdles. Insolvency Professionals feel duty-bound to inform the Government Authorities about the Tribunal order for insolvency resolution and their appointment, moratorium, invitation of claims and public announcement. The information of insolvency was usually taken as lightly as a waste paper by authorities armed with the power to attach any property and assets of assesses and accused.

These Government Authorities faced several legal and ego issues:

  1. How could Government Authorities, a legal and sovereign superpower, fall in the category of operational creditors? NOIDA is still facing the same dilemma and running post to pillar to satisfy its legal soul and ego. After losing on judicial fronts, they are pleading to Parliament for an amendment to the Code.
  2. How could a private person, the Insolvency Professional, ask a government authority to file the claim before himself? How could such a person claim the status of a court officer or legal jurisdiction over government authority?
  3. How could a government authority with the power to issue notice, summon someone, and assess tax liabilities suddenly run to the office of a private person, the Insolvency Professional, for approval of their claims? It hurts when an Insolvency Professional declines to receive claim paper (post ninety days), accepts claims, seeks bulky clarification or counters the claim based on his own wisdom.

This particular instruction dated 23.05.2022 is not without discrepancies and practical difficulties. The instruction correctly claims:

“3. One of the reasons for such delay in filing the claims is that concerned zonal offices have not received information regarding initiation of the process in a timely manner. Accordingly, it has not been proposed that IBBI would share the details of the public announcement on a regular basis to an identified office/office or a centralised system and hence it has been requested that such office/officer/system I CBIC need to be identified and intimated to the IBBI for implementing the system for sharing of information.”

This assertion indicates a pathetic situation.

Government Authorities and other persons may receive first-hand information on the insolvency or liquidation or bankruptcy orders directly from National Company Law Tribunal. Theses Instructions rely upon communication from the IBBI. The IBBI itself got this information with a 3-5 days delay.

There is a little time gap in IBBI Communication, which is required to be plugged.

In a practical scenario, within three days of appointment as an Interim Resolution Professional or Liquidator, the Insolvency Professionals issue public notices in newspapers and then send a copy to upload on the IBBI website. In addition, all insolvency professionals send information about the commencement of the insolvency resolution process by email and, if possible, by speed post to all potential claimants, including government authorities, tax authorities, suppliers, and bankers, subject to information received from the corporate debtor or gathered from secondary sources.

There may be a centralised nodal email address of authorities under CBIC. Insolvency Professionals could send an email about the commencement of the insolvency resolution process. Such email may have a standard subject line like <CIRP/Liquidation> <Company Name> <Company CIN> <Company PAN> <State> <Last date of filing Claim> for easy understanding and communication.

These Instructions issued by CBIC do not facilitate Insolvency professionals to communicate with powerful tax authorities directly. If CBIC does not enable Insolvency Professionals, it does not help CBIC authorities to file claims timely.

IBBI has a proper mechanism of email communication of daily development on the public announcement, invitation of claims, invitation of resolution plans and auction notices. Anyone can subscribe to the same. Point No. iv of SOPs annexed with this instruction must have mentioned it more clearly.

However, there is a little time gap in such IBBI Communication, which is required to be plugged. The copy of the public notice does not upload automatically on the IBBI website without their internal approval. Therefore, public notices may display on the IBBI website and communicate with a delay. IBBI may permit such public notices to be uploaded automatically with a copy of the NCLT order as soon as the concerned IRP/Liquidator drafts and upload the same on the IBBI website. This way, it may appear on the website and in newspapers on the same day.

Concerned officials of Government authority and Insolvency Professionals lack clarity on the filing of government claims. Such as; which officer has the authority to sign the claims, make declarations and affidavits, what supporting documents are required in claims by tax authorities and correspondence addresses like email and postal address, the release of properties and assets attached by tax authorities, and vacation of lien on bank accounts and other assets. All these issues and challenges lead to delays in the claim verification and the insolvency resolution process. Therefore, I suggest the next set of instructions and Standard Operating Procedures should have appropriate advisories on these matters. This will certainly assist in reducing litigation.

I have an additional suggestion for CBIC, which affects the microeconomic environment and MSMEs in particular. Unless the management of the corporate debtor under insolvency resolution is cooperating, Insolvency Professionals have no mechanism to have details of suppliers and service providers. All these suppliers and service providers are fellow operational creditors of these tax authorities under Insolvency and Bankruptcy Jurisprudence. CBIC has nation wise data of these suppliers and service providers, including their official email and postal addresses. In case of authorities under CBIC may, please provide such data of the last three years concerning the corporate debtor to concern insolvency professional; it may help better invitation of claims and verification thereof. Authorities under CBIC may also flash a message of public notice to these fellow operational creditors in an automated system.

Aishwarya Mohan Gahrana

To Join my telegram Channel: https://t.me/AishMGhrana
To Join my telegram discussion group (only for CA/CS/CMA/IP/RV): https://t.me/AishMGhrana

CLASS OF CREDITORS – AUTHORISED REPRESENTATIVE


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

A VALUERS’S SIDE OF DRAFT VALUATION BILL


Ministry of Corporate Affairs has placed on its website a Report of the Committee of Experts which examined the Need for an Institutional Framework for Regulation and Development of Valuation Professionals. Stakeholders may send their comments till 14th May 2020. Usually, Indian stakeholders took no interest in such draft as the law-making process is considered slow. However, stakeholders are equally responsible for plight create by half-hearted laws be it the Companies Act, 2013 or the Insolvency and Bankruptcy Code, 2016.

Continue reading

CRITICAL VIEW ON PROPOSED NATIONAL INSTITUTE OF VALUERS


Ministry of Corporate Affairs recently published a Report of the Committee of Experts to Examine the Need for an Institutional Framework for Regulation and Development of Valuation Professionals. This report proposed a new National Institute of Valuer as a bureaucratic institution for governing the nascent profession of valuers. We will discuss the same.

Continue reading

Amendment in Corporate Insolvency Regulations


Recent case of Jaypee Infratech, question arises where should home-buyers be classified? Are home-buyers financial creditors or operational creditors? In case, home-buyers they classify themselves as operational creditors, will they forego their claim on interest or assured return on their advances? In case, home-buyers they classify themselves as financial creditors, will they forego their claim over homes? This was a game of dice, will company be able to resolve insolvency or face liquidation?

These amendments try to solve these issues.

Continue reading

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.

Continue reading

Insolvency Professional “Non” Entity


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. This magic creation has no purpose except one apart from its legal existence.

[This post already published in NIRC – NIRC Newsletter June 2017] Continue reading

Notification of IBBI related Sections of IBC 2016


Recently Ministry of Corporate Affairs issued two notifications to enforce selected sections of the Insolvency and Bankruptcy Code, 2016. In this post we will briefly discuss section notified by Notification S.O. 2618(E) dated 5th August 2016 and S.O. 2746(E) dated 19th August 2016.

Continue reading