The
Bankruptcy Code (“Code”) has revamped the bankruptcy and insolvency laws in
India. The code was introduced with the primary objective of increasing
lender’s confidence and facilitating expansion of the credit market in India.
The main objective of the new law is to promote entrepreneurship, availability
of credit and balance the interests of all stakeholders by consolidating and
amending the laws relating to reorganization and insolvency resolution of
corporate persons, partnership firms and individuals in a time bound manner and
for maximization of value of assets of such persons, partnership firms and
individuals in time bound manner and for maximization of value of assets of
such persons and matters connected therewith or incidental thereto.
The
Bankruptcy code is a unified and comprehensive piece of legislation for the
resolution of insolvency in respect of Companies, limited liability
partnerships, partnership firms and individuals. The code creates a new
institutional framework which consists of adjudicatory bodies, a regulator,
Insolvency professionals and information utilities. Most importantly it offers
an exit plan to all categories of persons – Corporates, Stakeholders, Individuals
and Partnership firms, apart from over hauling century old legal framework.
The
code offers a market determined, time bound mechanism for orderly resolution of
insolvency, wherever possible, and orderly exit, wherever required. It
envisages an ecosystem comprising National Company Law Appellate Tribunal
(NCLAT), National Company Law Tribunal (NCLT), Debt Recovery Appellate Tribunal
(DRAT), Debt Recovery Tribunal (DRT), Insolvency and Bankruptcy Board of India
(Board), Information Utilities (IUs), Insolvency Professionals (IPs),
Insolvency Professional Agencies (IPAs) and Insolvency Professional Entities
(IPEs) for implementation of the code relating to corporate insolvency
resolution and liquidation.
Background:
The
entire insolvency and bankruptcy process under the code is managed by regulated
and licensed professionals, namely the Insolvency Professional (IP), duly
appointed by adjudicator. Insolvency Professional is appointed to conduct
insolvency resolution process in accordance with the procedure laid down in the
code. He is professional endowed with specialized knowledge, training and
recognized by Insolvency Professional Agency and Insolvency and Bankruptcy
Board of India for undertaking insolvency proceedings. The IPs are registered
and regulated by the Board. They play a critical role in transactions under the
code.
In
administering the resolution outcomes, the role of the IP encompasses a wide
range of functions, which includes adhering to the procedures of law as well as
accounting and finance related functions. Insolvency process under the Code
starts with a Financial Creditor, operational creditor or corporate applicant
as the case may be who makes an application to the Adjudicating Authority (AA)
about the debt default by the Corporate together with the name of IP who has
consented to act as an interim IP. If no reference is made to the Board about
the name of IP, AA makes reference to the Board. A financial creditor is a
person to whom a financial debt is owed including any assignee thereof arising
out of financial debt together with interest which is disbursed against
consideration for the value of money borrowed etc. Operational debtor refers to
an operational debt in respect of provision of goods and services including
employment, repayment of dues to the Govt. authorities or any local authority.
In performing these tasks, an IP acts as an agent of the adjudicator depends on
the specialized skills and expertise of the IP to carry out these tasks in an
efficient and professional manner.
The
role of IPs is thus vital to the efficient operation of the Insolvency
Professional Resolution. A well-functioning system of resolution driven by IPs enable
the adjudicator to delegate more and more powers and duties to the
professionals. This creates a positive externality of better utilization of
judicial time.
Registration of
Insolvency Professionals:
Regulation
13 of IBBI (Model Bye-law & Governing Board etc.) Regulations, 2016
provides that no person is allowed to render service as an IP except as a
member of the Insolvency Professional Agency. Such member is also required to
register with the Board. The three professional bodies-The Institute of Company
Secretaries of India(ICSI), Institute of Chartered Accountants of India (ICAI)
and Institute of Coast and Management Accountants of India (ICMAI) have formed
their 100% subsidiary companies as Insolvency Professional Agencies registered with
Insolvency and Bankruptcy Board of India to enroll and regulate the members
practising as Insolvency Professionals (IPs) in accordance with the provisions
of Insolvency and Bankruptcy Code, 2016 read with rules and regulations made
thereunder.
Such
members are also required to register with IBBI as per the procedure laid down
under Regulation 3 of IBBI (Insolvency Professionals) Regulations, 2016. The
regulations provides that an individual is not eligible for registration
unless:
- Has passed National Insolvency
Examination;
- Has passed the Limited Insolvency
Examination and has 15 years of experience in management after receiving
Bachelor’s degree from recognised university;
- Has passed the Limited Insolvency
Examination and has 10 years of experience as practicing CA/CS/CWA/advocate
enrolled with Bar Council.
Duties and functions of
Insolvency Professionals:
The
period of Insolvency process under the code is 180 days from the date of
application by the applicant with one-time extension of 90 days. The duties of
an IP are quite onerous having regard to role and responsibility cast on the
IP. The duties of IP are:
- To make a public announcement of
insolvency process in English language newspaper and regional language
newspaper circulating at the location of corporate registered office and the
principal office etc.
- To manage the affairs of the debtor as a
going concern;
- To collect information relating to the
assets, finances and operations of corporate debtor for determining the financial
position;
- To collect all claims received from
creditors;
-To constitute a committee of creditors
(COC) etc.
The
code also specifies functions and obligations to be observed by the Insolvency
Professionals. Where any insolvency resolution, fresh start, liquidation or
bankruptcy process has been initiated, it shall be the function of Insolvency
Professionals to take such actions as may be necessary in the manner provided
in the Code.
Recognition of
Insolvency Professional Entities:
A
Limited Liability Partnership, a registered Partnership Firm or a company may
be recognised as an Insolvency Professional entity when majority of partners of
LLP or firm are registered as Insolvency Professionals or a majority of the
whole time directors of the company are registered as Insolvency Professionals.
Recently, on 6th March, 2017, the Insolvency and Bankruptcy Board vide a press
release, has recognized two entities- IRR Insolvency Professionals Pvt. Ltd.
and AAA Insolvency Professionals LLP as Insolvency Professional Entities (IPE).
An IPE is jointly and severally liable for all acts or omissions of its
partners or directors as IPs committed during such partnership or directorship.
Conclusion:
The
Government has provided in the code a mechanism for resolving Insolvency and
Bankruptcy through Insolvency Professionals subject to the supervision and
control of the Adjudicating Authority. Insolvency Bankruptcy Board of India and
Insolvency Professional Agency will regulate the activities of Resolution
Professional. Now only the Registered IPs can act as Resolution Professional or
Trustee and Liquidators under the Companies Act, as well as under the Code. For
the purpose of the quality of the services required to carry on the business of
debtors on going concern basis and to maximize the value of the debtors, the
entry norms for the IPs are strict, requiring professional standing for not
less than 10 years for CA/CS/CWA and Advocates subject to passing of the
examination. Thus, The IP occupies a pivotal position and acts as an
intermediary between the debtor/creditors on the one hand and the Adjudicating
Authority on the other hand and functions under the watchful eyes of the Agency
and the Board.
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