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MODULE 4



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 20171. Likewise, the
losses for Bhushan Steel reduced from INR 14,860,000,000 to INR 4,670,000,000 for September
quater2. 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 criteriafor 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. 4.
Access to books. 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 are as follows:

Section 213 read with Regulation 3 of IBBI (Information Utility) Regulations, 2017provides 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 by Insolvency Professionals

Operational Creditors









AdjudicatoryAuthority



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.