ROLE OF RESOLUTION PROFESSIONAL IN CORPORATE INSOLVENCY RESOLUTION PROCESS

[Mr. M. GOVINDARAJAN]

Appointment of Resolution professional

In the earlier article entitled ‘Interim Resolution Professional’ we have seen that the Resolution Professional is appointed in the first meeting of the creditors convened by the interim resolution professional.  The interim resolution professional may be allowed to act as resolution professional or any other person may be appointed as Resolution Professional on application to the Adjudicating Authority.

Section 27 of the Insolvency and Bankruptcy Code, 2016 (‘Code’ for short) provides that the resolution professional is to conduct the entire corporate insolvency resolution process.   He is also to manage the operations of the corporate debtors during the corporate insolvency resolution process period.  He shall exercise the powers and perform duties as are vested on the interim resolution professional.  The interim resolution professional shall provide all the information, documents and records pertaining to the corporate debtor in his possession and knowledge to the resolution professional.

Convening of the meeting of creditors

The resolution professional shall conduct the meeting of the creditors.  He shall give notice of each meeting of the committee of creditors to-

• members of Committee of creditors;
• members of the suspended Board of Directors or the partners of the corporate persons;
• operational creditors or their representatives, if the amount of their aggregate dues is not less than 10% of the debt

The directors, partners and one representative of operational creditors may attend the meetings but shall not have any right to vote in such meetings.

Duties of resolution professional

Section 25 provides that it shall be the duty of the resolution professional to preserve and protect the assets of the corporate debtor, including the continuing business operations of the corporate debtor. The resolution professional shall undertake the following activities-

• to take immediate custody and control of all the assets of the corporate debtor, including the business records of the corporate debtor;
• to represent and act on behalf of the corporate debtorwith third parties, exercise rights for the benefit of the corporate debtor in judicial, quasi-judicial or arbitration proceedings;
• to raise interim finances subject to the approval of the committee of creditors under section 28;
• to appoint accountants, legal or other professionals in the manner as specified by the Board;
• to maintain and updated list of claims;
• to convene and attend all meetings of the committee of creditors;
• to prepare the information memorandum in accordance with section 29;
• to invite prospective lenders, investors and any other persons to put forward resolution plans;
• to present all resolution plans at the meetings of the committee of creditors;
• to file application for avoidance of transactions;
• such other actions as may be specified by the Board.

Restrictions

Section 28 provides that the resolution professional, during the corporate insolvency resolution process, shall not take any of the following actions without the prior approval of the committee of creditors-

• raise any interim finance in excess of the amount as may be decided by the committee of creditors in their meeting;
• create any security interest over the assets of the corporate debtor;
• change the capital structure of the corporate debtor, including by way of issuance of additional securities, creating a new class of securities or buying back or redemption of issued securities in case of the corporate debtor is a company;
• record any change in the ownership interest of the corporate debtor;
• give instructions to financial institutions maintaining accounts of the corporate debtor for a debit transaction from any such accounts in excess of the amount as may be decided by the committee of creditors in their meeting;
• undertake any related party transaction;
• amend any constitutional documents of the corporate debtor;
• delegate its authority to any other person;
• dispose of or permit the disposal of shares of any shareholder of the corporate debtor or their nominees to third parties;
• make any change in the management of the corporate debtor or its subsidiary;
• transfer rights or financial debts or operational debts under material contracts otherwise than in the ordinary course of business;
• make changes in the appointment or terms of contract of such personnel as specified by the Committee of creditors; or
• make changes in the appointment or terms of contract of statutory auditors or internal auditors of the corporate debtor.

The resolution professional shall convene a meeting of the committee of creditors and seek the vote of creditors prior to taking any of the action.  No action shall be approved by the committee of creditors unless approved by a vote of 75% of the voting shares.  Any action taken by the resolution professional without the approval of committee of creditors shall be void.  The Committee of creditors may report the actions of the resolution professional to the Board for taking necessary actions against him.

Information Memorandum

Section 29 provides for preparation of information memorandum by the resolution professional.  He shall prepare the information memorandum in such form and manner containing such relevant information as may be specified by the Board for formulating a resolution plan.  The resolution professional shall provide to the resolution applicant access to all relevant information in physical and electronic form, provided such resolution applicant undertakes-

• to comply with the provisions of law for the time being in force relating to confidentiality and insider trading;
• to protect any intellectual property of the corporate debtor it may have access to end;
• not to share relevant information with the third parties.

Submission of resolution plan

Section 30 provides that a resolution applicant may submit a resolution plan to the resolution professional prepared on the basis of information memorandum.  The resolution professional shall examine each resolution plan received by him to confirm that each resolution plan-

• provides for the payment of insolvency resolution process costs in priority to the repayment of other debts of the corporate debtor;
• provides for the repayment of debts of operational creditors as may be specified by the Board which shall not be less than the amount paid to the operational creditors in the event of a liquidation of the corporate debtor;
• provides for the management of the affairs of the corporate debtor after approval of the resolution plan;
• the implementation and supervision of the resolution plan;
• does not contravene any of the provisions of the law for the time being in force;
• conforms to such other requirements as may be specified by the Board.

The resolution professional shall submit the resolution plan in the meeting of Committee of creditors.  The resolution applicant may attend the meeting but not eligible to vote.  The resolution plan is to be approved by 75% of the creditors.

Approval of resolution plan

The resolution professional shall submit the resolution plan as approved by the Committee of creditors to the Adjudicating Authority.  If the Adjudicating Authority is satisfied that the resolution process as approved by the Committee of creditors meets the requirements it shall by order approve the resolution plan which shall be binding on the corporate debtor and its employees, members, creditors, guarantors and other stakeholders involved in the resolution plan.

If the Adjudicating Authority is not satisfied that the resolution plan does not conform to the requirements, it may by an order, reject the resolution plan.

After the order of approval the moratorium order passed by the Adjudicating Authority shall cease to have effect.  The resolution professional shall forward all records relating to the conduct of the corporate insolvency process and the resolution plan to the Board.

Appeal

Section 32 provides that any appeal from an order approving the resolution plan shall be lie with the National Company Law Appellate Tribunal.

Liquidation order

If the resolution plan as approved by the Adjudicating Authority is contravened by the concerned corporate debtor, any person other than the corporate debtor may make an application to the Adjudicating Authority for liquidation order.