AUTHORIZED REPRESENTATIVE IN CORPORATE INSOLVENCY RESOLUTION PROCESS

[Mr. M. GOVINDARAJAN]

Corporate insolvency resolution process

The Insolvency and Bankruptcy Code, 2016 (‘Code’ for short) provides for the corporate insolvency resolution process against a corporate debtor by a financial creditor or an operational creditor or by the corporate applicant itself.  The entire process is to be carried out by the interim resolution professional/resolution professional.  The interim resolution professional is to appoint a Committee of Creditors in which financial creditors will be participating.  The work of the resolution professional is monitored by the Committee of Creditors and he can perform his work only with the approval of Committee of Creditors.  If the financial creditors are more an authorized representative may be appointed, on the approval of Committee of Creditors, by the Adjudicating Authority.

Authorized representative

Where the corporate debtor has at least ten financial creditors in a class, the interim resolution professional shall offer a choice of three insolvency professionals and a creditor in the class may indicate its choice of an insolvency professional, from amongst the three, to act as its authorized representative.

Who can act as authorized representative?

The following persons may act as authorized representative of financial creditors-

• Where a financial debt-

• is in the form of securities or deposits and the terms of the financial debt provide for appointment of a trustee or agent to act as authorized representative for all the financial creditors, such trustee or agent shall act on behalf of such financial creditor;
• is represented by a guardian, executor or administrator, such person shall act as authorized representative on behalf of such financial creditors.

Identification

On an examination of books of account and other relevant records of the corporate debtor, the interim resolution professional shall ascertain class(s) of creditors, if any.  For representation of creditors in a class ascertained in the committee, the interim resolution professional shall identify three insolvency professionals who are-

• not his relatives or related parties;
• having their addresses, as registered with the Board, in the State or Union Territory, as the case may be, which has the highest number of creditors in the class as per their addresses in the records of the corporate debtor;
• where such State or Union Territory does not have adequate number of insolvency professionals, the insolvency professionals having addresses in a nearby State or Union Territory, as the case may be, shall be considered
• eligible to be  resolution professional under regulation 3; and
• willing to act as authorized representative of creditors in the class.

The interim resolution professional shall obtain the consent of each insolvency professional identified to act as the authorized representative of creditors in the class in Form AB.

A creditor in a class may indicate its choice of an insolvency professional, from amongst the three choices provided by the interim resolution professional in the public announcement, to act as its authorized representative.

Where the corporate debtor has only creditors in a class and no other financial creditor eligible to join the committee, the committee shall consist of only the authorized representative(s).

Appointment

The interim resolution professional shall select the insolvency professional, who is the choice of the highest number of financial creditors in the class in Form CA received under sub-regulation (1) of regulation 12, to act as the authorized representative of the creditors of the respective class.   The choice for an insolvency professional to act as authorized representative in Form CA received under sub-regulation (2) of regulation 12 shall not be considered.

Where a financial debt is owed to a class of creditors exceeding the number as may be specified, other than the creditors covered under clause (a) or sub-section (6), the interim resolution professional shall make an application to the Adjudicating Authority along with the list of all financial creditors, containing the name of an insolvency professional, other than the interim resolution professional, to act as their authorized representative who shall be appointed by the Adjudicating Authority prior to the first meeting of the committee of creditors.

The interim resolution professional shall apply to the Adjudicating Authority for appointment of the authorized representatives selected within two days of the verification of claims.   Any delay in appointment of the authorized representative for any class of creditors shall not affect the validity of any decision taken by the committee.

Creditors list

Regulation 13 [Insolvency and Bankruptcy Code (Insolvency Resolution Process for Corporate Persons) Regulations, 2016] provides that the interim resolution professional or the resolution professional, as the case may be, shall verify every claim, as on the insolvency commencement date, within 7 days from the last date of the receipt of the claims, and thereupon maintain a list of creditors containing names of creditors along with the amount claimed by them, the amount of their claims admitted and the security interest, if any, in respect of such claims, and update it.

The list of creditors shall be made available for inspection by members, partners, directors and guarantors of the corporate debtor or their authorized representatives.   The interim resolution professional or the resolution professional, as the case may be, shall provide an updated list of creditors in each class to the respective authorized representative as and when the list is updated.

The authorized representative shall have no role in receipt or verification of claims of creditors of the class he represents. 

Notice for meeting

A meeting of the committee for creditors shall be called by giving not less than 5 days’ notice in writing to every participant, at the address it has provided to the interim resolution professional or the resolution professional, as the case may be.  Such notice may be sent by hand delivery or by post but in any event, be served on every participant by electronic means in accordance with Regulation 20.   The committee may reduce the period to such other period of not less than 48 hours if there is any authorized representative.

The notice of the meeting shall provide that a participant may attend and vote in the meeting either in person or through an authorized representative.   Such participant shall inform the resolution professional, in advance of the meeting, of the identity of the authorized representative who will attend and vote at the meeting on its behalf.

Meeting of Committee of Creditors

The resolution professional shall give notice of each meeting of the committee of creditors to members of committee of creditors, including the authorized representatives.

The authorized representative shall have the right to participate and vote in meetings of the committee of creditors on behalf of the financial creditors he represents in accordance with the prior voting instructions of such creditors obtained through physical or electronic means.

The authorized representative is to circulate the agenda and minutes of the meeting of the committee of creditors to the financial creditor he represents.

The authorized representative shall attend the meetings of the committee of creditors, and vote on behalf of each financial creditor to the extent of his voting share.

The authorized representative shall not act against the interest of the financial creditor he represents and shall always act in accordance with their prior instructions.

The authorized representative 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 50% of the voting share of the financial creditors he represents, who have cast their vote.

If the authorized representative represents several financial creditors, then he shall cast his vote in respect of each financial creditor in accordance with instructions received from each financial creditor, to the extent of his voting share.

If any financial creditor does not give prior instructions through physical or electronic means, the authorized representative shall abstain from voting on behalf of such creditor.

The authorized representative shall file with the committee of creditors any instructions received by way of physical or electronic means, from the financial creditor he represents, for voting in accordance therewith, to ensure that the appropriate voting instructions of the financial creditor he represents is correctly recorded by the interim resolution professional or resolution professional.

The authorized representative shall circulate the agenda to creditors in a class, and may seek their preliminary views on any item in the agenda to enable him to effectively participate in the meeting of the committee.  The creditors shall have a time window of at least twelve hours to submit their preliminary views, and the said window opens at least twenty-four hours after the authorized representative seeks preliminary views.  Such preliminary views shall not be considered as voting instructions by the creditors.

The authorized representative shall cast his vote in respect of each financial creditor or on behalf of all financial creditors he represents in accordance with the provisions of sub-section (3) or sub-section (3A) of section 25A, as the case may be.

Minutes

The resolution professional shall circulate the minutes of the meeting by electronic means to all members of the committee and the authorized representative, if any, within 48 hours of the conclusion of the meeting.  The authorized representative shall circulate the minutes of the meeting received to creditors in a class and announce the voting window at least 24 hours before the window opens for voting instructions and keep the voting window open for at least 12 hours.

Remuneration

The authorized representative of creditors in a class shall be entitled to receive fee for every meeting of the committee attended by him in the following manner-

• No. of creditors in the class –

• 10 – 100 – the fee per meeting of the Committee is Rs.15000/-;
• 101 – 1000 – the fee per meeting of the Committee is Rs.20000/-‘
• More than 1000 – the fee per meeting of the Committee is Rs.25000/-.

Role of Authorized representative

In  AASHRAY SOCIAL WELFARE SOCIETY & ORS. VERSUS SAHA INFRATECH PVT. LTD. & ORS. - 2022 (6) TMI 283 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NEW DELHI   the National Company Law Appellate Tribunal  held that  there is no provision in the Code that before the Adjudicating Authority it is the Authorized Representative who has to represent the creditors in a class. Authorized Representative has a limited role assigned under the statutory scheme i.e. to attend the meetings of Committee of Creditors and to cast votes on behalf of the creditors in a class. As per the statutory scheme, there is no such requirement in law that the Authorized Representative shall represent the creditors in a class before the Adjudicating Authority in adjudication.