PROPOSED CHANGES ON THE ROLE OF AUTHORIZED REPRESENTATIVE UNDER CORPORATE INSOLVENCY RESOLUTION PROCESS

[Mr. M. GOVINDARAJAN]

Authorized Representative

Section 21(6) and (6A) of the Insolvency and Bankruptcy Board of India Code, 2016 (‘Code’ for short) provides for the appointment of authorized representative by the Financial Creditors within a given class to represent them to participate in the meeting of Committee of Creditors and vote on behalf of the Financial Creditors.  For this purpose 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.

Rights and duties of Authorized Representative

Section 25A of the Code prescribes the rights and duties of the authorized representatives.  The Authorized representative has a dual role-

• he is responsible for ensuring that the Committee of Creditors  fulfills all its obligations in terms of his professional expertise; and
• he has an explicit responsibility to protect the interests of the Financial Creditors he represents.

Views of Home Buyers

The homebuyers are of the view that the duties of the Authorized Representative should be increased so that he can be a catalyst in removing the difficulties being faced by them in understanding the matters related to Committee of Creditors, in making decision, in getting relevant information for matters related to Committee of Creditors’ meetings and their interactions with Adjudicating Authority and National Company Law Appellate Tribunal. 

New proposal by Board

Considering the views of the stakeholders the Insolvency and Bankruptcy Board of India (‘Board’ for short) among with other subjects brought a discussion paper to increase the duties of Authorized Representatives.  Regulation 16A of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Person) Regulations, 2016 provides the roles and responsibilities of Authorized Representative.

The Board proposes to amend Regulation 16A by inserting sub-regulations from (10) to (19) as discussed below-

(10) The Authorized Representative shall assist the creditors in a class he represents in understanding the discussions and considerations of the Committee of Creditors meetings and facilitate informed decision-making.

(11) The Authorized Representative shall review the contents of minutes prepared by the Resolution Professional) to ensure correctness and completeness.

(12) The Authorized Representative shall work collaboratively with the creditors in a class he represents to enhance the marketability of the assets of the Corporate Debtor.

(13) The Authorized Representative shall provide assistance to the creditors in a class he represents in evaluating the resolution plans submitted by resolution applicants.

(14) The Authorized Representative shall maintain open and frequent communication with the Resolution Professional, ensuring that the creditors in a class he represents have access to any information or documents required to form an educated perspective on issues discussed in the Committee of Creditors’ meetings.

(15) The Authorized Representative shall regularly update the creditors in a class he represents on the progress of the Corporate Insolvency Resolution Process.

(16) The Authorized Representative shall act as a representative for the creditors in a class he represents in interactions with the National Company Law Tribunal, National Company Law Appellate Tribunal, and other regulatory authorities.

(17) The Authorized Representative shall assist in modifications of the resolution plan as may be required by the creditors in class he represents.

(18) The Authorized Representative shall take due and reasonable care to record proceedings and prepare the minutes of the meeting with the creditors in a class he represents. The provisions regarding minutes of meetings in the Corporate Insolvency Resolution Process Regulations shall apply mutatis mutandis for this sub-regulation.

(19) The creditors in a class may propose any additional responsibilities upon the Authorized Representative, keeping in mind its interests. Such responsibilities shall be recorded in the minutes of the Committee of Creditors’ meeting.

Increase of fees to Authorized Representative

Regulation 16A (8) provides the fee structure to Authorized Representative.  The said Regulation provides that 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-

• If the number of creditors in a class is 10 - 100 - the fee payable is Rs.15,000/-;
• If the number of creditors in a class is 101 - 1000 - the fee payable is Rs.20,000/-;
• If the number of creditors is more than 1000 - the fee payable is Rs.25,000/-.

The above said fee has been fixed during the year 2018 and the same has not been reviewed by the Board.  Since the responsibility of the Authorized Representative is to be increased on the implementation of the new proposals offered by the Board, the Board considered that the existing fees may not be commensurate with the increased responsibility of the Authorized Representative.    It is also proposed to provide a fee separately for meeting of creditors in class with the Authorized Representative.

The proposed fee for the Authorized Representative is designed to be incorporated within the overall cost of the Corporate Insolvency Resolution Process.  The proposed fee structure is as detailed below-

• If the number of creditors in a class is 10 - 100 - the fee payable is Rs.30,000/-;
• If the number of creditors in a class is 101 - 1000 - the fee payable is Rs.40,000/-;
• If the number of creditors is more than 1000 - the fee payable is Rs.50,000/-.

Where a meeting of creditors is convened for a particular class of creditors with the Authorized Representative, a separate fee shall be levied for such meeting, the fee for which shall be as follows-

• If the number of creditors in a class is 10 - 100 - the fee payable is Rs.10,000/-;
• If the number of creditors in a class is 101 - 1000 - the fee payable is Rs.12,000/-;
• If the number of creditors is more than 1000 - the fee payable is Rs.15,000/-.

Replacement of Authorized Representative

At present there is no express provision for replacement of an Authorized Representative after his appointment by the Adjudicating Authority.  If the class of creditors is not satisfied with the functions of the Authorized Representative, he cannot be replaced as per the existing provisions of the Act and Regulations. 

The Board proposes to insert a new Regulation 16A (3A) and (3B).  The newly inserted Regulation 16A(3A) provides that where the financial creditors in the class, representing not less than ten percent voting share, seek replacement of the authorized representative by making a request to the interim resolution professional or resolution professional, as the case may be, along with their choice of insolvency professional; the interim resolution professional or resolution professional, as the case may be, shall circulate such request to the creditors in that class and announce a voting window open for at least twenty four hours from such circulation.

The newly inserted Regulation 16A(3B) provides that subject to sub-regulation (2A) and (2B) of regulation 4A, the interim resolution professional or resolution professional, as the case may be, shall offer choice of at least 3 insolvency professionals to the financial creditors in the class including such insolvency professional(s) proposed under sub-regulation (3A) and shall apply to the Adjudicating Authority for appointment of the authorized representative who is the choice of highest number of financial creditors in that class.

The above said proposals may be brought in effect at the earliest possible by the Board.