RESOLUTION APPLICANT UNDER INSOLVENCY AND BANKRUPTCY CODE, 2016

[Mr. M. GOVINDARAJAN]

Invitation of resolution applicant

Section 25 of the Insolvency and Bankruptcy Code, 2016 (‘Code’ for short)  prescribes the duties of the resolution professional.  One among the duties of resolution professional, as per section 25(2)(h) is to invite prospection resolution applicants, who fulfill such criteria as may be laid down by him with the approval of committee of creditors, having regard to the complexity and scale of operations of the business of the corporate debtor and such other conditions as may be specified by the Board, to submit a resolution plan or plans

Resolution applicant

Originally the expression ‘resolution applicant’ has been defined under section 5(25) of the Code as any person who submits a resolution plan to the resolution professional.  The Insolvency and Bankruptcy Code (Amendment) Act, 2018 substituted the above said definition to a new one with effect from 23.11.2017.  The newly substituted definition defines the expression ‘resolution applicant’ as a person, who  individually or jointly with any other person, submits a resolution plan to the resolution professional pursuant to the invitation made under section 25(2)(h) of the Code.

Persons not eligible to be resolution applicant

Section 29A of the Code has been inserted by the Insolvency and Bankruptcy Code (Amendment) Act, 2018 with effect from 23.11.2017.   This section prescribes who are not eligible to act as a resolution applicant.  According to this section a person shall not be eligible to submit a resolution plan, if such person, or any other person acting jointly or in concert with such person-

(a) is an undischarged insolvent;

(b) is a willful defaulter in accordance with the guidelines of the Reserve Bank of India issued under the Banking Regulation Act, 1949;

(c) at the time of submission of resolution plan has an account, or an account of a corporate debtor under the management or control of such person or of whom such person is a promoter, classified as-

• nonperforming asset in accordance with the guidelines of the RBI issued under the Banking Regulation Act, 1949; or
• the guidelines of a financial regulator issued under any other law for the time being in force;

and at least a period of one year has lapsed from the date of such classification till the date of commencement of the corporate insolvency resolution process of the corporate debtor.

The person shall be eligible to submit a resolution plan if such person makes payment of all overdue amounts with interest thereon and charges relating to non performing asset accounts before submission of resolution plan.  This will not be applicable to a resolution applicant where such resolution applicant is a financial entity and not related party to the corporate debtor;

(d) has been convicted for any offence punishable with imprisonment-

• for two years or more under any Act specified under the Twelfth Schedule; or
• for seven years or more under any other law for the time being in force

this will not apply to a person after the expiry of two years from the date of release from his imprisonment and also in relation to a connected party;

(e) is disqualified to act as a director under the Companies Act, 2013 – this will not apply in relation to a connected person;

(f) is prohibited by the SEBI from trading in securities or accessing the securities markets;

(g) has been a promoter or in the management or control of a corporate debtor in which a preferential transaction, undervalued transaction, extortionate credit transaction or fraudulent transaction has taken place and in respect of which an order has been made by the Adjudicating Authority under this Code; this shall not apply if a preferential transaction, undervalued transaction, extortionate credit transaction or fraudulent transaction has taken place prior to the acquisition of the corporate debtor by the resolution applicant pursuant to a resolution plan approved under this Code or pursuance to a scheme or plan approved by a financial sector regulator, or a court and such resolution applicant has not otherwise contributed to the preferential transaction, undervalued transaction, extortionate credit transaction or fraudulent transaction;

(h) has executed a guarantee in favor of a credit in respect of a corporate debtor against which an application for insolvency resolution made by such creditor has been admitted and such guarantee has been invoked by the creditor and remains unpaid in full or part;

(i) is subject to any disability, corresponding to clauses (a) to (h), under any law in a jurisdiction outside India; or

(j) has a connected person not eligible under clauses (a)to (i).

Connected person

For the purpose of section 29A(j), the expression ‘connected person’ means-

• any person who is the promoter or in the management or control of the resolution applicant; or
• any person who shall be the promoter or in management or control of the business of the corporate debtor during the implementation of the resolution plan; or
• the holding company, subsidiary company, associate company or related party of a person referred to above.

The above shall not include a resolution applicant where such applicant is a financial entity and is not a related party of the corporate debtor.

Financial entity

The Explanation II to section 29A defines the expression ‘financial entity’ as the following entities which meet such criteria or conditions as the Central Government may, in consultation with the financial sector regulator, notify in this behalf, namely-

• a Scheduled Bank;
• any entity regulated by a foreign central bank or a securities market regulator or other financial regulator of a jurisdiction outside India which jurisdiction is compliant with the Financial Action Task Force Standards and is a signatory to the International Organization of Securities Commissions Multilateral Memorandum of Understanding;
• any investment vehicle, registered foreign institutional investor, registered foreign portfolio investor or a foreign venture capital investor, where the terms shall have the meaning assigned to them in of made under ;
• an asset reconstruction company registered with RBI under section 3 of the Securities and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002;
• an Alternate Investment Fund registered with SEBI;
• such categories of persons as may be notified by the Central Government.

Resolution plan by resolution applicant

The resolution professional shall prepare an 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.  The 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; and
• not to share relevant information with third parties unless above are complied with.

A resolution applicant may submit a resolution plan  along with an affidavit stating that he is eligible under Section 29A to the resolution professional prepared on the basis of information memorandum.

Approval of resolution plan

The resolution professional shall examine each resolution received by him to confirm that each resolution plan has complied with the requirements under section 30(2) of the Code.  The resolution professional shall present to the committee of creditors for its approval.  The Committee of creditors may approve a resolution plan by a vote not less than 66% of voting share of financial creditors, after considering its feasibility and viability and such other requirements as may be specified by the Board.

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 plan as approved by the financial creditors meets the requirements of section 30(2) 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 or it may reject the resolution plan.

The resolution applicant shall, pursuant to the resolution plan approved by the Adjudicating Authority obtain the necessary approval required under any law for the time being in force within a period of one year from the date of approval of the resolution plan by the Adjudicating authority or within such a period as provided for in such law, whichever is later.

Discussions to this article

[Rangee Suresh Kumar Singh]

Sir,

Let me know what is status legal position in respect of insolvency resolution of partnership firms and individuals, has the act has come into effect please entlithen.

thanks

R.S.K.Singh Advocate Karnataka

[DR.MARIAPPAN GOVINDARAJAN]

The provisions relating to insolvency of firms and individuals have not yet come into force.