Tag Archives: Insolvency Professional

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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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

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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.

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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

Liquidator in voluntary liquidation

In recent posts, we discussed voluntary liquidation and its commencement. In liquidation, liquidator play crucial role.

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Voluntary Liquidation

Part II of Chapter XX of the Companies Act (discussed earlier here and here) has been omitted by the Insolvency and Bankruptcy Code, 2016. In new scheme, there will be voluntary liquidation, not voluntary winding – up as called earlier.  In this post we will discuss Chapter V of the Insolvency and Bankruptcy Code, 2016 consisting of consisting of section 59.

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