Role, Function, Duties of Insolvency Resolution Professional – Corporate Restructuring, Insolvency, Liquidation & Winding-Up Important Questions

Question 1.
The moratorium shall not apply to a surety in a contract of guarantee to a corporate debtor. Do you agree with this? What is the effect of the order of moratorium? What are the purposes served by the declaration of moratorium?
Answer:
When a financial creditor files an application for initiating the Corporate Insolvency Resolution Process, the NCLT may admit or reject it. If the application is admitted, NCLT is empowered to take certain actions. After admitting the application, the NCLT shall

  • declare a moratorium,
  • give a public announcement of the initiation of Corporate Insolvency Resolution Process and call for the submission of claims, and
  • appoint an interim resolution professional.

As per Section 14 of the Insolvency and Bankruptcy Code, 2016, on insolvency commencement date, the Adjudicating Authority (NCLT) shall declare moratorium. Following is the effect of moratorium:

  • prohibition on institution of suits or continue pending proceedings against Corporate Debtor;
  • prohibition on transferring, encumbering, alienating or disposing of by the Corporate Debtor any of its assets or any legal right or beneficial interest therein;
  • prohibition on any action to foreclose, recover or enforce any secu¬rity interest created by Corporate Debtor in respect of its property including any action under the SARFAESI, 2002;
  • prohibition on the recovery of any property by an owner or lessor where such property possession of the Corporate Debtor.
  • supply of essential goods, services to Corporate Debtor shall not be terminated/suspended.
  • any license, permit, concession given by Govt, to corporate debtor shall not be suspended

However, such moratorium does not apply to a surety in a contract of guarantee to a corporate debtor. The moratorium order shall be effective from the date of NCLT order till the completion of corporate insolvency resolution process or liquidation order of Corporate Debtor. Purpose of Moratorium

  • Ensures that multiple proceedings are not taking place simultaneously and thus avoids the possibility of potentially conflicting outcomes of related proceedings;
  • Keeps the Corporate Debtor’s assets together during the insolvency resolution process and facilitates orderly completion of the process;
  • Ensures that the company may continue as a going concern while the creditors assess the options for resolution of default;
  • Prohibition on disposal of Corporate Debtor’s assets ensure that the Corporate Debtor does not transfer its assets, thereby reducing its value.

Question 2.
Sun Finserve Ltd., a financial-cum-operational creditor to a corporate debtor is aggrieved by the action of the resolution professional. Suggest the measures available to the company under the Insolvency and Bankruptcy Code, 2016
Answer:
→ An aggrieved financial creditor or operational creditor or corporate debtor may make an application to the Adjudicating Authority (within ten days) challenging the action of the Resolution Professional, on the following grounds
(a) that the Resolution Professional has not given an opportunity to the corporate debtor or the financial/operational creditor to make a representation; or
(b) that the Resolution Professional colluded with the other party in arriving at the decision; or
(c) that the Resolution Professional has not complied with the requirements.

→ The Adjudicating Authority shall decide the application against the Resolution Professional within 14 days of receipt of such application and make an order as it deems fit.

→ Where such application has been admitted by the Adjudicating Authority, it shall forward its order to the IBBI and the Board may take such action as may be required against the Resolution Professional

→ Hence, in the given case, Sun Finserve Ltd. shall file an appeal with the Adjudicating Authority, against the actions of the resolution professional.

Question 3.
An insolvency professional shall be eligible to be appointed as a liquidator if he, and every partner or director of the insolvency professional entity of which he is a partner or director is independent of the corporate person. How will you judge that a person is independent of the corporate person?
Answer:
→ An insolvency professional shall be eligible to be appointed as a liquidator if he, and every partner or director of the insolvency professional entity of which he is a partner or director is independent of the corporate person.

→ As per Regulation 3 (1) of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016, a person shall be considered independent of the corporate person, if he
(a) is eligible to be appointed as an independent director on the Board of the corporate person under Section 149 of the Companies Act, 2013, where the corporate person is a company;
(b) is not a related party of the corporate person; or
(c) has not been an employee or proprietor or a partner

  • of a firm of auditors or secretarial auditors or cost auditors of the corporate person; or
  • of a legal or a consulting firm, that has or had any transaction with the corporate person contributing ten percent or more of the gross turnover of such firm, in the last three years.

Question 4.
As per section 25(2) of the Insolvency and Bankruptcy Code, 2016, the Resolution Professional shall undertake actions in order to preserve and protect the assets of the corporate debtor. Briefly explain the duties of the Resolution Professional.
Answer:
Section 25 of the Insolvency and Bankruptcy Code, 2016 provides the duties of resolution professional to preserve and protect the assets of the corporate debtor.

The resolution professional shall undertake the following actions:

  • take immediate custody and control of all the assets of the corporate debtor, including the business records of the corporate debtor;
  • represent and act on behalf of the corporate debtor with third parties, exercise rights for the benefit of the corporate debtor in judicial, quasi-judicial or arbitration proceedings,
  • raise interim finances subject to the approval of the Committee of Creditors,
  • appoint accountants, legal or other professionals in the manner as specified by Board,
  • maintain an updated list of claims,
  • convene and attend all meetings of the committee of creditors,
  • prepare the information memorandum,
  • invite prospective resolution applicants (with the approval of committee of creditors), having regard to the complexity and scale of operations of the business of the corporate debtor,
  • present all resolution plans at the meetings of the committee of creditors etc.

Question 5.
On or after promulgation of Insolvency and Bankruptcy Code, 2016 only the qualified person can be appointed as a Resolution Professional or a Liquidator of a Corporate Body – Discuss briefly.
Answer:

  • As per Section 206 of the Insolvency and Bankruptcy Code, 2016, no one can render services of an Insolvency Professional (IP) without being enrolled as a member of Insolvency Professional Agency (IPA) and registered with Insolvency and Bankruptcy Board of India (IBBI).
  • Thus, only persons with requisite qualifications and registered as In-solvency Professional can take up the role of Resolution Professional or Liquidator including Voluntary Liquidation.
  • IBBI (Insolvency Professionals) Regulations, 2016 require a person to complete pre-registration educational course, as may be required by the Board, from an insolvency professional agency after his enrolment as a professional member.
  • Section 207(2) of the Code empowers the IBBI to state eligibility cri¬teria for the persons having exposure in finance, law, management, insolvency or such other field, as it deems fit.
  • Hence, only qualified persons can be appointed as a Resolution Professional or Liquidator of a Corporate Body.

Question 6.
In the “Resolution Process”, define the functions of Insolvency Professionals. Is their contribution being noticed?
Answer:
→ An Insolvency Professional means a person enrolled with an Insolvency Professional Agency as its member and registered with the IBBI. The Code provides for IP as intermediaries who would play a key role in the efficient working of the insolvency and bankruptcy process.

→ Insolvency Professional (IP) plays a very important role under the Insolvency and Bankruptcy Code, 2016. Insolvency Professionals are intermediaries that facilitate the efficient working of the bankruptcy process. They are private professionals who are experts and experienced.

→ The functions performed by Insolvency Professionals are:
(a) Conducting Resolution Process;
(b) Conducting Meeting of Creditors;
(c) Management of operations of corporate debtor as going concern;
(d) Preparation of Information Memorandum;
(e) Submission of resolution plan; and
(f) Conducting of Liquidation process under the order of Adjudicating Authority if the resolution plan is not accepted or approved, etc.

→ The contribution of IPs has become significant and professional bodies are imparting Training such that more IPs come to this profession. The contribution has just been initiated, but the role shall be greater and more prominent in future for IPs.

Question 7.
Discuss the functions and code of conduct of Insolvency Professional under the Insolvency and Bankruptcy Code, 2016.
Answer:
→ An Insolvency Professional means a person enrolled with an Insolvency Professional Agency as its member and registered with the IBBI. The Code provides for IP as intermediaries who would play a key role in the efficient working of the insolvency and bankruptcy process.

→ He acts as an ‘Interim Resolution Professional (IRP)’ and ‘Resolution Professional (RP)’ in the Corporate Insolvency Resolution Process. Further, an Insolvency Professional acts as a liquidator as well as a ‘bankruptcy trustee’ for the estate of the bankrupt.

→ As per section 208 of the Insolvency and Bankruptcy Code, 2016, where any insolvency resolution, fresh start, liquidation or bankruptcy process has been initiated, it shall be the function of an insolvency professional to take such actions as may be necessary, in the following matters:
(a) a fresh start order process
(b) individual insolvency resolution process
(c) corporate insolvency resolution process
(d) individual bankruptcy process
(e) liquidation of a corporate debtor firm.

→ As per section 208 of the IBC, 2016, every insolvency professional shall abide by the following Code of Conduct
(a) to take reasonable care and diligence while performing his duties;
(b) to comply with all requirements and terms and conditions specified in the bye-laws of the insolvency professional agency of which he is a member;
(c) to allow the insolvency professional agency to inspect his records;
(d) to submit a copy of the records of every proceeding before the Adjudicating Authority to the Board as well as to the insolvency professional agency of which he is a member; and
(e) to perform his functions in such a manner and subject to such conditions as may be specified.

Corporate Restructuring, Insolvency, Liquidation & Winding-Up Notes