Chapter 16 Role, Functions and Duties of IP/IRP/RP – Corporate Restructuring Insolvency Liquidation & Winding Up Notes is designed strictly as per the latest syllabus and exam pattern.
Role, Functions and Duties of IP/IRP/RP – Corporate Restructuring Insolvency Liquidation & Winding Up Study Material
Question 1.
Write a short note on the role of Insolvency and Bankruptcy Board of India. (Dec 2018, 5 marks)
Answer:
Role of the Board
- Regulating all matters related to insolvency and bankruptcy process.
- Setting out eligibility requirements of insolvency intermediaries i.e., Insolvency’ Professionals, Insolvency Professional Agencies and Information Utilities.
- Regulating entry, registration and exit of insolvency intermediaries.
- Making model bye laws for Insolvency Professional Agencies.
- Setting out regulatory standards for Insolvency Professionals.
- Specifying the manners in which Information Utilities can collect and store data.
Question 2.
The moratorium shall not apply to a surety in a contract of guarantee to a corporate debtor. Do you agree with this? What is the effect of the order of moratorium? What are the purposes served by the declaration of moratorium? (Dec 2019, 5 marks)
Answer:
Yes, the moratorium shall not apply to a surety in a contract of guarantee to a corporate debtor.
Effect of order of moratorium – The order of moratorium shall have effect from the date of such order till the completion of the corporate insolvency resolution process. Provided that where at any time during the corporate insolvency resolution process period, if the NCLT approves the resolution plan under section 31 (1) of the Insolvency and Bankruptcy Code, 2016 (the Code) or passes an order for liquidation of corporate debtor under section 33 of the Code, the moratorium shall cease to have effect from the date of such approval or liquidation order, as the case may be. [Section 14(4)].
Declaration of moratorium serves the following purposes:
- Ensures that multiple proceedings are not taking place simultaneously and thus avoids the possibility of potentially conflicting outcomes of related proceedings.
- Keeps the corporate debtor’s assets together during the insolvency resolution process and facilitates orderly completion of the process,
- Ensures that the company may continue as a going concern while the creditors assess the options for resolution of default.
- Prohibition on disposal of the corporate debtor’s assets ensure that the corporate debtor/management does not transfer its assets, thereby stripping the corporate debtor of value during the corporate insolvency resolution process.
Question 3.
As per section 25(2) of the Insolvency and Bankruptcy Code, 2016, the Resolution Professional shall undertake actions in order to preserve and protect the assets of the corporate debtor. Briefly explain the duties of the Resolution Professional. (Dec 2019, 5 marks)
Answer:
Section 25 of the Insolvency and Bankruptcy Code, 2016 sets out the duties of resolution professional to preserve and protect the assets of the corporate debtor, including the continued business operations of the corporate debtor and lays down the functions he may perform for the same. [Section 25(1)]
Section 25(2) of the Code provides that for the purposes of sub-section (1) of Section 25, the resolution professional shall undertake the following actions, namely:
(a) take immediate custody and control of all the assets of the corporate debtor, including the business records of the corporate debtor;
(b) represent and act on behalf of the corporate debtor with third parties, exercise rights for the benefit of the corporate debtor in judicial, quasi-judicial or arbitration proceedings,
(c) raise interim finances subject to the approval of the committee of creditors under section 28 of the Code,
(d) appoint accountants, legal or other professionals in the manner as specified by Board,
(e) maintain an updated list of claims,
(f) convene and attend all meetings of the committee of creditors,
(g) prepare the information memorandum in accordance with Section 29 of the Code,
(h) invite prospective resolution applicants, who fulfil 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.
(i) present all resolution plans at the meetings of the committee of creditors,
(j) file application for avoidance of transactions in accordance with Chapter III, if any, and
(k) such other actions as may be specified by the Board.
Question 4.
“An Information Memorandum is respect of affairs of the Corporate Debtor undergoing Corporate Insolvency Resolution Process is to be prepared in such a manner that incites the Resolution Applicant, but the facts stated therein need be true without any suppression or misinformation”- Would you amplify with your views? Also discuss, if there is a need for taking a confidentiality undertaking from prospective Resolution Applicant while accessing any detailed information. (Aug 2021, 5 marks)
Answer:
Section 29 of the Insolvency and Bankruptcy Code, 2016 read with Regulation 36 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 lays down the preparation of an information memorandum as one of the main functions of the resolution professional.
An information memorandum is envisaged to be prepared in order for the resolution applicants to provide solutions for resolving the insolvency of the corporate debtor.
Hence contents need to be filled in with correct facts without any suppression. At the same time, the contents need to be impressive so that the Resolution Applicant is motivated to put in funds and efforts for revival of the Corporate Debtor.
Section 29(2) further indicates authorisation to the Resolution Applicant to access detailed information only after receipt of confidentiality undertaking from such applicant.
Thus, the information memorandum and further details are confidential to the Resolution Professional, Resolution Applicant and of course Adjudicating Authority.
Question 5.
“The Insolvency Profession offers a challenging opportunity to the professional members as an Insolvency Professional plays a central role in the effective implementation of the Insolvency Law.” Discuss this statement from the view that the success of an Insolvency/Bankruptcy case depends primarily on the quality of the professional attending it. (June 2022, 5 marks)
Question 6.
Deepak was appointed as Interim Resolution Professional (IRP) by Adjudicating Authority on 1st July 2019 in respect of Corporate Debtor Bingo Ltd. Bingo Ltd. failed to file returns regarding Tax Deducted at Source for Quarter 1 for the Financial Year 2019-20. Suspended Directors argued that they are not managing the affairs of the Company and hence the responsibility of compliance lies with IRP. Offer your views referring to provisions of Section 17(2) of Insolvency and Bankruptcy Code, 2016 and clarify whether the contention of the suspended directors is justified. (Dec 2020, 5 marks)
Answer:
- Section 17 of the Insolvency and Bankruptcy Code 2016 (IBC) lists out the powers of an Interim Resolution Professional (IRP) to do all acts and execute documents in the name of corporate debtor (CD) for effective discharge of his responsibilities.
- Section 17 (2) (e) of IBC specifies that the IRP is responsible for complying with the requirements under the law for the time being in force for the CD.
- However, Section 17 (1) (c) requires the officers and mangers of the CD shall report to IRP for accessing documents and records. Officers include Directors that are suspended in terms of Section 17 (1) (b).
- Although responsibility lies with IRP for compliance yet the suspended directors need to discharge their duties at the instructions of IRP.
- Thus, in the given case, the directors cannot claim their responsibility and they are duty bound to extend all cooperation to IRP for timely compliance.
Question 7.
YM Auto Ltd. sends expression of interest as a Resolution Applicant and has been shortlisted by the Resolution Professional. Now YM Auto Ltd. writes to Resolution Professional to provide Information Memorandum. The Resolution Professional seeks your guidance in this regard. Give your views. (Aug 2021, 3 marks)
Answer:
Section 29(2) of the of Insolvency and Bankruptcy Code, 2016 provides that the resolution professional shall provide to the resolution applicant access to all relevant information in physical and electronic form, provided such resolution applicant undertakes:
(a) to comply with provisions of law for the time being in force relating to confidentiality and insider trading;
(b) to protect any intellectual property of the corporate debtor it may have access to; and
(c) not to share relevant information with third parties unless clauses (a) and (b) above are complied with.
On submission of the undertaking by YM Auto Ltd. can be shared with the Information Memorandum prepared by the Resolution Professional.
Question 8.
Can insolvency professional outsource any of his duties and responsibilities under the Code?
Answer:
The IBBI vide circular dated 03rd January, 2018 stated that an insolvency professional shall not outsource any of his duties and responsibilities under the Code, He shall not require any certificate from another person certifying eligibility of a resolution applicant.
Role, Functions and Duties of IP/IRP/RP Notes
Enrolment and Registration of Insolvency Professionals
Section 206 of the Insolvency and Bankruptcy Code lays down that no person shall render his services as insolvency professional under this Code without being enrolled as a member of an insolvency professional agency and registered with the Board.
Functions and Obligations of Insolvency Professionals
(a) to take reasonable care and diligence while performing his duties;
(b) to comply with all requirements and terms and conditions specified in the bye-laws of the insolvency professional agency of which he is a member;
(c) to allow the insolvency professional agency to inspect his records;
(d) to submit a copy of the records of every proceeding before the Adjudicating Authority to the Board as well as to the insolvency professional agency of which he is a member; and
(e) to perform his functions in such manner and subject to such conditions as may be specified.
Disqualifications for Insolvency Professionals
- is a minor
- is not a person resident in India
- does not have the qualification and experience specified in regulations 5 and 9 of the IBBI (Insolvency Professionals) Regulations, 2016
- has been convicted by any competent court for an offence punishable with imprisonment for a term exceeding six months or for an offence involving moral turpitude, and a period of five years has not elapsed from the date of expiry of the sentence. Provided that if a person has been convicted of any offence and sentenced in respect thereof to imprisonment for a period of seven years or more, he shall not be eligible to be registered
- he is an undischarged insolvent, or has applied to be adjudicated as an insolvent
- he has been declared to be of unsound mind
- he is not a fit and proper person
Code of Conduct for insolvency Professionals
Integrity and objectivity
- An insolvency professional must maintain integrity by being honest, straightforward, and forthright in all professional relationships
- An insolvency professional must not misrepresent any facts or situations and should refrain from being involved in any action that would bring disrepute to the profession
- An insolvency professional must act with objectivity in his professional dealings
Independence and impartiality
- An insolvency professional must maintain complete independence in his professional relationships
- An insolvency professional shall not take up an assignment under the Code if he, any of his relatives, any of the partners or directors of the insolvency professional entity of which he is a partner or director, or the insolvency professional entity of which he is a partner or director is not independent
Professional competence
An insolvency professional must maintain and upgrade his professional knowledge and skills to render competent professional service
Representation of correct facts and correcting misapprehensions
An insolvency professional must inform such persons under the Code as may be required, of a misapprehension or wrongful consideration of a fact of which he becomes aware, as soon as may be practicable.
Timeliness
- An insolvency professional must adhere to the time limits prescribed in the Code
- An insolvency professional must make efforts to ensure that all communication to the stakeholders, whether in the form of notices, reports, updates, directions, or clarifications, is made well in advance and in a manner which is simple, clear, and easily understood by the recipients
- An insolvency professional must provide all information and records as may be required by the Board or the insolvency professional agency with which he is enrolled
Confidentiality
An insolvency professional must ensure that confidentiality of the information relating to the insolvency resolution process, liquidation or . bankruptcy process, as the case may be, is maintained at all times.
Occupation, employability and restrictions
An insolvency professional must refrain from accepting too many assignments, if he is unlikely to be able to devote adequate time to each of his assignments
Remuneration and costs
An insolvency professional must provide services for remuneration which is charged in a transparent manner, is a reasonable reflection of the work necessarily and properly undertaken, and is not inconsistent with the applicable regulations.
Gifts and hospitality
An insolvency professional, or his relative must not accept gifts or hospitality which undermines or affects his independence as an insolvency professional.
Public Announcement of Corporate Insolvency Resolution Process
Public announcement of the corporate insolvency resolution process shall contain the following information:
(a) Name and address of the corporate debtor under the corporate insolvency resolution process,
(b) Name of the authority with which the corporate debtor is incorporated or registered,
(c) Last date for submission of claims, as may be specified,
(d) Details of the interim resolution professional who shall be vested with the management of the corporate debtor and be responsible for receiving claims,
(e) Penalties for false or misleading claims, and
(f) Date on which the corporate insolvency resolution process shall close, which shall be the one hundred and eightieth day from the date of the admission of the application
Appointment, Tenure and Duties of Interim Resolution Professional
Section 16 provides for the appointment and term of the Interim Resolution Professional by the adjudicating authority. The section reads as follows:
1. The Adjudicating Authority shall appoint an interim resolution professional on the insolvency commencement date.
2. Where the application for corporate insolvency resolution process is made by a financial creditor or the corporate debtor, as the case may be, the resolution professional, as proposed respectively in the application under section 7 or section 10, shall be appointed as the interim resolution professional, if no disciplinary proceedings are pending against him.
3. Where the application for corporate insolvency resolution process is made by an operational creditor and-
(a) no proposal for an interim resolution professional is made, the Adjudicating Authority shall make a reference to the Board for the recommendation of an insolvency professional who may act as an interim resolution professional;
(b) a proposal for an interim resolution professional is made under sub-section (4) of section 9, the resolution professional as proposed, shall be appointed as the interim resolution professional, if no disciplinary proceedings are pending against him.
4. The Board shall, within ten days of the receipt of a reference from the Adjudicating Authority under sub-section (3), recommend the name of an insolvency professional to the Adjudicating Authority against whom no disciplinary proceedings are pending.
5. The term of the interim resolution professional shall continue till the data of appointment of the resolution professional under section 22
Management of Affairs of Corporate Debtor by Interim Resolution Professional
Section 17(1) of the Code provides that from the date of appointment of the Interim Resolution Professional,
(a) the management of the affairs of the corporate debtor shall vest in the interim resolution professional,
(b) the powers of the board of directors or the partners of the corporate debtor, as the case may be, shall stand suspended and be exercised by the interim resolution professional,
(c) 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 debtor as may be required by the interim resolution professional
(d) the financial institutions maintaining accounts of the corporate debtor shall act on the instructions of the interim resolution professional in relation to such accounts and furnish all information relating to the corporate debtor available with them to the interim resolution professional.
Personnel to Extend Co-operation to Interim Resolution Professional
Section 19 imposes an obligation on the personnel and promoters of the corporate debtor to extend all assistance and cooperation required by the Interim Resolution Professional in the management of the affairs of the corporate debtor.
Management of Operations of Corporate Debtor as Going Concern
Section 20 of the Code lays down that the Interim Resolution Professional has to manage the operations of the corporate debtor as a going concern to enable him to protect and preserve the value of the property of the corporate debtor. The Interim Resolution Professional has the power to raise interim finance as well as to enter into, amend or modify contracts on behalf of the corporate debtor.
Appointment of Resolution Professional
Section 22 provides that at the first meeting of the committee of creditors which is held within seven days of its constitution, the committee of creditors by a majority vote of not less than sixty-six percent of the voting share of the financial creditors, may either resolve to appoint the interim resolution professional as a resolution professional or to replace the interim resolution professional by another resolution professional.
The Adjudicating Authority shall forward the name of the resolution professional proposed under clause (b) of sub-section (3) to the Board for its confirmation and shall make such appointment after confirmation by the Board.
Eligibility for Resolution Professional
Regulation 3 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 lays down the following eligibility criteria for a resolution professional:
(1) An insolvency professional shall be eligible to be appointed as a resolution professional for a corporate insolvency resolution process of a corporate debtor if he, and all partners and directors of the insolvency professional entity of which he is a partner or director, are independent of the corporate debtor.
A person shall be considered independent of the corporate debtor, if he:
(a) is eligible to be appointed as an independent director on the board of the corporate debtor under section 149 of the Companies Act, 2013, where the corporate debtor is a company;
(b) is not a related party of the corporate debtor; or
(c) is not an employee or proprietor or a partner:
- of a firm of auditors or secretarial auditors in practice or cost auditors of the corporate debtor; or
- of a legal or a consulting firm, that has or had any transaction with the corporate debtor amounting to five percent or more of the gross turnover of such firm, in the last three financial years.
Resolution Professional to Conduct Corporate Insolvency Resolution Process
Section 23 provides that the resolution professional shall be responsible for carrying out the entire corporate insolvency resolution process and managing the operations of the corporate debtor during such process.
Duties of Resolution Professional
- take immediate custody and control of all the assets of the corporate debtor, including the business records of the corporate debtor
- represent and act on behalf of the corporate debtor with third parties
- raise interim finances subject to the approval of the committee of creditors
- prepare the information memorandum
- appoint accountants, legal or other professionals
- maintain an updated list of claims
- convene and attend all meetings of the committee of creditors
- invite prospective resolution applicants to submit a resolution plan or plans
- present all resolution plans at the meetings of the committee of creditors
Replacement of Resolution Professional by Committee of Creditors
Section 27 provides that a resolution professional may be replaced at any time during the corporate insolvency resolution process by the committee of creditors by a sixty-six percent majority of voting shares.
Preparation of Information Memorandum
Section 29 read with regulation 36 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 lays down the preparation of an information memorandum as one of the main functions of the resolution professional. An information memorandum is envisaged to be prepared in order for the resolution applicants (market participants) to provide solutions for resolving the insolvency of the corporate debtor.