INTERIM RESOLUTION PROFESSIONAL

[Mr. M. GOVINDARAJAN]

Insolvency professional

Section 2(19) of the Insolvency and Bankruptcy Code, 2016 (‘Code’ for short) defines the expression ‘insolvency professional’ as a person enrolled under section 206 with an insolvency professional agency as its member and registered with the Board as an insolvency professional under section 207.

The insolvency professional may act as-

• Interim resolution professional;
• Resolution professional;
• Liquidator;
• Bankruptcy trustee.

Corporate insolvency resolution process

Section 6 of the Code provides that where any corporate debtor commits a default, a financial creditor, an operational creditor or the corporate debtor itself may initiate corporate insolvency resolution process in respect of such corporate debtor.

Section 7 provides the procedure for initiation of corporate insolvency resolution process by financial creditor.  Section 8 and 9 provides the procedure for initiation of corporate insolvency resolution process by operational creditor.  Section 10 provides the procedure for initiation of corporate insolvency resolution process by corporate applicant.

The application for the corporate insolvency resolution process is to be filed by respective person before the Adjudicating Authority (National Company Law Tribunal), having jurisdiction.  The Adjudicating Authority, after considering the application, either admit the application or reject the application.

Commencement of corporate insolvency resolution process

The corporate insolvency resolution process shall commence from the date of admission of the application by the Adjudicating Authority.  After admission the Adjudicating Authority shall, by an order declare-

• declare a moratorium;
• cause a public announcement of the initiation of corporate insolvency resolution process and call for the submission of claims;
• appoint an interim resolution professional.

Appointment of interim resolution professional

Section 16 of the Code provides that the Adjudicating Authority shall appoint an interim resolution professional within 14 days from the insolvency commencement date.

In case of financial creditor or corporate debtor

In this regard, the financial creditor or corporate debtor, who initiates the insolvency resolution process, is to file an application proposing a resolution professional to be appointed as interim resolution professional.  The said person shall be appointed as the interim professional agency if no disciplinary proceedings are pending against him.

In case of operational creditor

In case of the operational creditor in the application filed by him, if he does not propose for an interim resolution professional, the Adjudicating Authority shall make a reference to the Board for the recommendation of insolvency professional who may act as an interim professional agency.  The Board shall within 10 days of the receipt of the reference from the Adjudicating Authority recommend the name of an insolvency professional against whom no disciplinary proceedings are pending.  If a proposal for an interim resolution profession is made the said person shall be appointed, if no disciplinary proceedings are pending against him.

Tenure

Section 16 (5) provides that the term of the interim resolution professional shall not exceed 30 days from the date of his appointment.

Management by Interim resolution professional

Section 17(1) of the Code provides that on his appointment as interim resolution professional,-

• the management of the affairs of the corporate debtor shall vest in the interim resolution professional;
• the powers of the board of directors or the partners of the corporate debtor, shall stand suspended and be exercised by the interim resolution professional;
• the officers and managers of the corporate debtor shall report to the interim resolution professional and provide access to such documents and records of the corporate debtors as may be required by the interim resolution professional;
• the financial institutions maintaining accounts of the corporate debtor shall act on the instructions of the interim resolution professional in relation to such account and furnish all information relating to the corporate debtor available with them to the interim resolution professional.

Section 17(2) provides that the interim resolution professional vested with the management of the corporate debtor shall-

• act and execute in the name and on behalf of the corporate debtor all deeds, receipts and other documents, if any;
• take such actions, in the manner and subject to such restrictions as may be specified by the Board;
• have the authority to access the electronic records of corporate debtor from information utility having financial information of the corporate debtor;
• have the authority to access the books of account, records and other relevant documents of corporate debtor available with government authorities, statutory auditors, accountants and such other persons as may be specified.

Duties of interim resolution professional

Section 18 of the Code prescribes the duties of the interim resolution professional.  According to this section, the interim resolution professional shall perform the following duties-

• collect all information relating to the assets, finances and operations of the corporate debtor for determining the financial position of the corporate debtor, including information relating to-

• business operations for the previous two years;
• financial and operational paymentsfor the previous two years;
• list of assets and liabilities as on the initiation date; and
• such other matters as may be specified;

• receive and collate all the claims submitted by the creditors to him, pursuant to the public announcement made-

• under section 13 – declaration of moratorium and public announcement;
• under section 15 – public announcement of corporate insolvency resolution process;

• constitute a committee of creditors;
• monitor the assets of the corporate debtor and manage its operations until a resolution professional is appointed by the committee of creditors;
• file information collected with the information utility, if necessary; and
• take control and custody of any asset over which the corporate debtor has ownership rights as recorded in the balance sheet of the corporate debtor, or with information utility or the depository of securities or any other registry that records the ownership of assets including-

• assets over which the corporate debtor has ownership rights which may be located in a foreign country;
• assets that may or may not be in possession of the corporate debtor;
• tangible assets, whether moveable or immovable;
• intangible assets including intellectual property;
• securities including shares held in any subsidiary of the corporate debtor, financial instruments, insurance and policies;
• assets subject to the determination of ownership by a court or authority;

• to perform such other duties as may be specified by the Insolvency Board.

Assets

The explanation to section 18 defines the term ‘assets’ as not including the following-

• assets owned by a third party in possession of the corporate debtor held under trust or under contractual arrangements including bailment;
• assets of any Indian or foreign subsidiary of the corporate debtor; and
• such other assets as may be notified by the Central Government in consultation with any financial sector regulator.

Extension of co-operation

Section 19 (1) provides that the personnel of the corporate debtor, its promoters or any other person associated with the management of the corporate debtor shall extend all assistance and co-operation to the interim resolution professional as may be required by him in managing the affairs of the corporate debtor.

Failure to co-operate

Section 19(2) provides that where any personnel of the corporate debtor, its promoter or any other person required assisting or co-operating with the interim resolution professional does not assist or co-operate, the interim resolution professional may make an application to the Adjudicating Authority for necessary directions.  Section 19(3) provides that the Adjudicating Authority, on receiving an application, shall by an order, direct such personnel or other person to comply with the instructions of the resolution professional and to co-operate with him in collection of information and management of the corporate debtor.

Obligation of interim resolution professional

Section 20(1) of the Code provides that the interim resolution professional shall take every endeavor to protect and preserve the value of the property of the corporate debtor and manage the operations of the corporate debtor as a going concern.

Section 20 (2) provides that for the purpose of section 20(1) the interim resolution professional shall have the authority-

• to appoint accountants, legal or other professionals as may be necessary;
• to enter into contracts on behalf of the corporate debtor or to amend or modify the contracts or transactions which were entered into before the commencement of the corporate insolvency resolution process;
• to raise interim finance provided that no security shall be created over any encumbered property of the corporate debtor without the prior consent of the creditors whose debt is secured over such encumbered property;
• no prior consent of the creditor shall be required where the value of such property is not less than the amount equivalent to twice the amount of debt;
• to issue instructions to personnel of the corporate debtor as may be necessary for keeping the corporate debtor as a going concern; and
• to take all such actions as are necessary to keep the corporate debtor as a going concern.

Committee of creditors

Section 21(1) provides that the interim resolution professional shall after collation of all claims received against the corporate debtor and determination of the financial position of the corporate debtor, constitute a committee of creditors.  The Committee of creditors shall comprise all financial creditors of the corporate debtor.   Section 22(1) provides that the first meeting of the committee of creditors shall be held within seven days of the constitution of the committee of creditors.   In the said meeting ‘resolution professional’ is to be appointed to conduct further corporate insolvency resolution process.  The interim resolution professional may be appointed as resolution professional if the creditors, by a majority of vote not less than 75% of the voting share of the financial creditors by resolution.

Till such time the resolution professional is appointed, the interim resolution professional is responsible for the process.