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Published by Enhelion, 2019-11-25 07:28:18

IBC_Module 8

IBC_Module 8

IBC NETWORK

Insolvency Resolution Professional

Enforced with the objective of time-bound insolvency resolution and maximization
of assets, the Insolvency Bankruptcy Code, 2016 (hereinafter referred to as "IBC"), in
order to facilitate the process of insolvency resolution, has provision for appointment
of an insolvency resolution professional (hereinafter referred to as "IRP").

According to the provisions of the IBC, the erstwhile management of the debtor is
divested of its powers and the same is then vested in an IRP. The IRP then continues
the business of the corporate body as a going concern until a resolution plan is drawn
up, which enables the corporate body to pay back its debts. The IRP is duty-bound to
monitor the assets of the debtor and claims made against it and constitute a committee
of creditors. The control and custody of the assets of the debtor may be taken over by
the IRP.

The amendments to the IBC is an attempt to ensure that only viable resolution plans
from credible sources are accepted and verified. The IRP appointed under the
provisions of the IBC shall submit to the Committee of Creditors all resolution plans
which comply with the requirements of the IBC.

The IRP shall render services for a fee which is a reasonable reflection of his work,
raise bills / invoices in his name towards such fees, and such fees shall be paid to his
bank account. There have been reported cases where the losses of the debtor
companies have been reduced by the appointment of IRP. For instance, the Assam
Company India Ltd., reported a loss of INR 213,800,000 against INR 224,700,000 a
year earlier for the June quarter of 2017. Likewise, the losses for Bhushan Steel

reduced from INR 14,860,000,000 to INR 4,670,000,000 for September quater.
Losses for Monnet Ispat reduced from INR 4,000,000,000 to INR 3,530,000,0002.

The IBC ensures implication of strict measures against unscrupulous debtors escaping
and delaying the repayment of debts incurred by using the legislative framework and
thus prevents the scope of one taking advantage of their own wrong. The IRPs take up
the management of the debtor with themselves separating the management who were
taking care of the affairs of the Company earlier. The IBC is aimed with the objective
to accord another opportunity to the dying debtor entity by taking over its
responsibility of management and thereby helping it to get back on its feet.

Eligibility criteria for being a resolution professional are-

(1) An insolvency professional shall be eligible to be appointed as a resolution
professional for a fast track 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. Explanation– 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 (18 of 2013), where the
corporate debtor is a company;

(b) is not a related party of the corporate debtor; or (c) has not been an employee or
proprietor or a partner:

1) of a firm of auditors or company secretaries in practice or cost auditors of the
corporate debtor; or

2) of a legal or a consulting firm, which has or had any transaction with the corporate
debtor amounting to ten per cent or more of the gross turnover of such firm, at any
time in the preceding three years.

(2) An insolvency professional shall not be eligible to be appointed as a resolution
professional if he, or the insolvency professional entity of which he is a partner or
director, is under a restraint order of the Board.

(3) An insolvency professional shall make disclosures at the time of his appointment
and thereafter in accordance with the Code of Conduct.

(4) An insolvency professional shall not continue as a resolution professional if the
insolvency professional entity of which he is a director or a partner, or any other
partner or director of such insolvency professional entity represents any other
stakeholders in the same fast track process.

Without prejudice to section 17(2)(d), the interim resolution professional may access
the books of account, records and other relevant documents and information, to the
extent relevant for discharging his duties under the Code, of the corporate debtor held
with-

(a) Depositories of securities;

(b) Professional advisors of the corporate debtor;

(c) Information utilities;

(d) Other registries that record the ownership of assets;

(e) Members, promoters, partners, board of directors and joint venture partners of the
corporate debtor; and
(f) Contractual counterparties of the corporate debtor.
(5) Extortionate credit transaction. A transaction shall be considered an extortionate
credit transaction under section 50(2) where the terms:

(a) require the corporate debtor to make exorbitant payments in respect of the credit
provided; or (b) are unconscionable under the principles of law relating to contracts.

Insolvency Professionals

• The Code provides for insolvency professionals as intermediaries who would
play a key role in the efficient working of the bankruptcy process.

• The role of the IP encompasses a wide range of functions, which include
adhering to procedure of the law, as well as accounting and finance related
functions.

• In the resolution process, the insolvency professional verifies the claims of the
creditors, constitutes a creditors committee, runs the debtor’s business during
the moratorium period and helps the creditors in reaching a consensus for a
revival plan.

• In liquidation, the insolvency professional acts as liquidator and bankruptcy
trustee.

• Where any corporate debtor commits a default, following persons:
• a financial creditor,
• an operational creditor, or
• the corporate debtor itself

Information utility

What is information utility?

An information utility is an entity which is registered so under Section 210 of the
Code, is authorized to carry on the business of IU and is governed and regulated by
IBBI as per the provisions of IBBI subject to conditions specifically provided under
the Code. A Certificate of Registration (“CoR”) is a prerequisite to establish an IU. It
is basically an information network which would store financial data like borrowings,

default and security interests among others of firms. The utility would specialize in
procuring, maintaining and providing/supplying financial information to businesses,
financial institutions, adjudicating authority, insolvency professionals and other
relevant stake holders.

The objective behind information utility is to provide genuine and high-quality
information regarding any debts and defaults. It is expected to play a key role as it
will allow storage of financial information of registered users and will also verify the
information received. Moreover, the database and records maintained by them would
help lenders in taking informed decisions about credit transactions. It would also
make debtors cautious as credit information is available with the utility. It will also
act as an evidence in bankruptcy cases.

Criteria to register as an Information Utility:

Regulation 3 of IBBI (Information Utility) Regulations, 2017 provide the following:
No person shall be eligible to be registered as an information utility unless it is a
public company and –

(a) its sole object is to provide core services and other services under these
Regulations, and discharge such functions as may be necessary for providing these
services;

(b) its shareholding and governance is in accordance with Chapter III;
(c) its bye-laws are in accordance with Chapter IV;
(d) it has a minimum net worth of fifty crore rupees;
(e) it is not under the control of person(s) resident outside India;
(f) not more than 49% of its total voting power or its paid-up equity share capital is
held, directly or indirectly, by persons resident outside India;
(g) the person itself, its promoters, its directors, its key managerial personnel, and
persons holding more than 5%, directly or indirectly, of its paid-up equity share
capital or its total voting power, are fit and proper persons.
According to IBBI, the core services of Information Utility is as follows:

Section 213 read with Regulation 3 of IBBI (Information Utility) Regulations, 2017
provides that an IU shall provide core services and other services as provided under
the Regulations.
‘Core services’ means services rendered by an information utility for—
(a) accepting electronic submission of financial information in such form
and manner as may be specified;
(b) safe and accurate recording of financial information;

(c) authenticating and verifying the financial information submitted by a
person; and
(d) providing access to information stored with the information utility to
persons as may be specified.

Who can submit information to IU?

Information to IU Financial Crreditors
may be submitted Insolvency

by Professionals
Operational Creditors

Adjudicatory Authority

The National Company Law Tribunal (NCLT) was recently announced as the
adjudicating authority for insolvency proceedings relating to companies, limited
liability partnerships and other body corporates under the Insolvency and Bankruptcy
Code 2016, with effect from June 1 2016.The National Company Law Appellate

Tribunal (NCLAT), which will hear appeals from NCLT decisions, has also been
established. The NCLT will have 11 benches across India.
In this regard, the provisions of the Companies Act 2013 dealing with the
composition of the NCLT and NCLAT and the provisions dealing with the transfer of
proceedings that are pending before the Company Law Board to the NCLT have come
into force.

However, the provisions to transfer insolvency proceedings for companies which are
pending before the high courts (company courts) to the NCLT have not yet come into
force. Further, the provisions of the code for initiating fresh insolvency proceedings
for corporate persons are not yet in force. Accordingly, until the amendments to the
Companies Act 2013 that are prescribed in the code are passed and come into force,
insolvency proceedings of corporate persons will continue to be held before the high
courts, in accordance with the Companies Act 1956.
The adjudicating authority for corporate insolvency and liquidation is the NCLT.
Appeals arising out of NCLT orders lie to the National Company Law Appellate
Tribunal within 30 days and, thereafter, to the Supreme Court of India on a question
of law arising out of such order under this Code within forty-five days from the date
of receipt of such order.
For individuals and other persons, the adjudicating authority is the DRT. Appeals
arising out of DRT orders lie to the Debt Recovery Appellate Tribunal within 30 days
and thereafter, to the Supreme Court on a question of law arising out of such order
under this Code within forty-five days from the date of receipt of such order.


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