RESOLUTION PROFESSIONAL

Who is a “Resolution Professional"?

A Resolution Professional (RP) is an individual expert who specializes in insolvency and bankruptcy and is appointed to manage the resolution process regarding the subject matter. They engage in this process by taking control of the debtor’s assets and operations in case of insolvency proceedings while working on behalf of the creditors and other stakeholders to ensure that the company can recover financially with a sound resolution plan. In case, the resolution plan is not successfully implemented and the company is ordered to undergo liquidation, such professionals also operate as a liquidator who then starts to sell the company's assets to settle claims put forth by the creditors. They play a significant role in overseeing the entire Corporate Insolvency Resolution Process (CIRP) to ensure that the interests of creditors and debtors are balanced with the main intention of making the company a going concern.

Official Definition of Resolution Professional

Resolution Professional as defined in Legislation:

The official definition of resolution professional is stated in The Insolvency and Bankruptcy Code, 2016, under Section 5 (27), wherein they are Insolvency Professionals (IP) appointed to conduct and manage the insolvency process known as the Corporate Insolvency Resolution Process (CIRP), also includes the Interim Resolution Professional (IRP).

Legal provision(s) pertaining to Resolution Professional:

In order to gain a sound understanding and perception of RPs and their role, duties, and process involved it becomes important to look into other relevant provisions, which are ancillary to RP.

• Section 3 (19)  defines “insolvency professional” as a person enrolled as a member of an Insolvency Professional Agency (IPA) as per Section 206 and registered with the Insolvency and Bankruptcy Board of India (IBBI) as an IP as per Section 207.

• Section 3 (20), further defines the  Insolvency Professional Agency (IPA), as any person registered with the IBBI under Section 201 as an IPA.

• Section 5 (13), has defined Insolvency Resolution Process Costs, which means the costs incurred during the process including the fees to the RP, the amount during interim finance, costs incurred by the government in facilitating the process, and such other costs specified by the board.

• Section 5 (14), specifies the period under which the resolution process is to be completed, wherein it is one-hundred and eighty days from the date of commencement of the insolvency.

What is CIRP?

The Corporate Insolvency Resolution Process (CIRP) is a mechanism under the IBC, 2016, and is read with the Insolvency and Bankruptcy (Adjudicating Authority) Rules, 2016, which is intended to resolve the insolvency of corporate debtors. This process majorly requires identifying and addressing the defaults committed by corporate debtors by restructuring or liquidation, in a well-structured manner. However, the process is subject to the time limit specified in the code. The process holds utmost importance, as while addressing the defaults, it also manages to maintain the company’s operations.

Key parties in the CIRP Process:

1. Corporate Debtor - In simple words, it is the company that is undergoing insolvency. In the code, it is defined in Section 3 (8), as a company (“corporate person”) that owes debt to any person.
2. Financial Creditors - These are Financial Institutions like banks or other entities or “persons to whom a financial debt is owed as well persons to whom the debt is legally assigned to transferred”, as defined in Section 5 (7) of the code.
3. Operational Creditor - Suppliers or service providers or such persons to whom an “operational debt is owed as well as persons to whom the debt is legally assigned or transferred”, as defined in Section 5 (20) of the code.
4. Adjudicating Authority  - The adjudicating authority under the code and for the CIRP is the “National Company Law Tribunal (NCLT)”,  as specified in Section 5 (1) of the code.
5. Information Utility - A repository storing data about debts, defaults, and such financial information and is registered with IBBI. [Section 3 (21)]
6. Insolvency and Bankruptcy Board of India - The regulatory body, IBBI, ensures legal compliance & is established and incorporated under Section 188 of the code [Section 3(1)]
7. Committee of Creditors (CoC) - The Committee of Creditors is constituted under Section 21 of the code and consists of the financial creditors, this committee plays a vital role in the CIRP, by making decisions in the resolution plan through voting which requires 75% approval from the financial creditors.

Who can initiate CIRP?

• A financial creditor, operational debtor, or creditor is authorized to initiate the resolution process against the corporate debtor who has committed default [Section 6].
  • The financial creditor can initiate the resolution process by filing an application before the adjudicating authority, with a record or evidence of the default and the proposed RP being named for the resolution process [Section 7].
  • An operational creditor delivers a demand notice to the corporate debtor regarding payment of the amount, upon the occurrence of a default. The corporate debtor ought to respond within ten days, indicating any existing dispute or providing evidence of repayment of the debt [Section 8].
    • If the operational creditor, within ten days still hasn't received payment or a notice of dispute from the debtor, they hence after file an application before the adjudicating authority requesting to initiate a CIRP. As part of the application, the creditor must furnish a copy of the invoice, an affidavit, a certificate from financial institutions, and any other specified information [Section 9].
  • A corporate applicant can initiate the insolvency resolution process in case of default, before the adjudicating authority in the prescribed application format. The authority can either accept or reject the application within fourteen days, once accepted the resolution process starts [Section 10].

Role of IRP:

• An Interim Resolution Professional is appointed by NCLT, within 14 days of the commencement of the resolution process [Section 16 (1)].
• The interim resolution professional has a handful of duties starting from,
  • Collecting relevant information and details about the company’s assets, finances, and business operations for the past two years.
  • Receive and gather the claims submitted by the creditors.
  • To oversee the insolvency process they ought to establish the Committee of Creditors (CoC).
  • They have the duty to control and manage the company’s assets and operations until the CoC appoints a permanent RP.
  • Take control and custody of assets of the corporate debtor. [Section 18]

• The Appointment of resolution professional is carried out after the CoC’s first meeting, where,
  • They can either keep the IRP as the permanent RP, it must be communicated to the IRP, the corporate debtor, and the adjudicating authority. [or]
  • If the decision is to replace the IRP with another RP (with 75% majority vote), then the application must be filed with the adjudicating authority.
  • Following this, the proposed application for RP is forwarded to the Insolvency and Bankruptcy Board of India (IBBI) for confirmation.
  • The new RP is appointed upon the confirmation, if they don’t confirm within 10 days then the IRP continues as RP until the IBBI confirmation. [Section 22]

Role of RP:

• The appointed RP has the following duties in the resolution process,
  • They ought to protect and preserve the corporate debtor's assets and make sure that the business is functioning.
  • They take control/custody of the assets, and business records and represent the debtor in case of legal or other proceedings.
  • Upon the approval of the creditor, they can raise interim finance and appoint accountants or lawyers.
  • Call for the meetings of the CoC and present the resolution plan. [Section 25]

• The RP prepares an Information Memorandum, which contains the details of the corporate debtor and is shared with the resolution applicants, where they must comply with confidentiality [Section 29].
• Based on the provided memorandum the applicants submit the resolution plans, which the RP examines making sure they meet the legal requisite and insolvency costs, and the approved plan is submitted before the CoC for voting [Section 30].
• NCLT may approve the resolution plan if it is satisfied and the moratorium ceases, eventually, all the records are forwarded to the IBBI. In case it is rejected the process continues again [Section 31].

Eligibility Criteria for RPs:

The eligibility criteria for a person to be appointed as a resolution professional is provided under Regulation 3 of the IBIB (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. Wherein, the regulation states that,

• The RP must be independent of their corporate debtors, in case it is an entity then their partner and directors must also be independent.
• Further, it also sets criteria for an RP to be considered independent,
  • Eligible to be an independent director as per the Companies Act, 2013.
  • They must not be related to the corporate debtor, as an employee/partner of firms providing auditing or legal services with financial ties in the past 3 years.

• As per the RP’s code of conduct, they must disclose at the time of the appointment and must continue throughout the resolution process.
• If a particular RP is part of the Insolvency Professional Entity, they are not eligible if their firm represents the involved stakeholder in the very same resolution process.

Registration of RP:

Given that RP is one form of IP, they are registered with the board in their capacity or through their affiliated IPA. Insolvency and Bankruptcy Board of India (IPs) Regulations, 2016, provides the following regulations with regard to the registration of IP,

• Eligibility - IPs are not eligible if they are, [Regulation 4]
  • Minor
  • Not a resident of India
  • Does possess the specified qualifications and experience
  • Committed for an offence with more than 6 months of imprisonment
  • Insolvent; unsound mind
  • If they are not a “fit and proper person” (Criteria decided by IBBI)
  • For IPA entities if the partner or director does not meet the requirement of “fit and proper person criteria”

• Qualification and Experience - [Regulation 5]
  • Individuals are required to pass the “Limited Insolvency Examination” within a time frame of 12 months of applying for enrolment with an IPA.
  • Ought to have completed a “pre-registration educational course”
  • Completed the National Insolvency Programme and Post Graduate Insolvency Programme as approved by the board.
  • They are required to have relevant experience of 10 years in law or management or as a CA, CS, or advocate.

In order to procure the Certificate of Registration, the individuals or the entities would have to apply through Form A or Form AA and with a prescribed fee, which is acknowledged and forwarded to the IBBI [Regulation 6]. Following this upon meeting the set requirements & confirmation, the IBBI may issue the certificate within 30 days but is subject to several other conditions like professional conduct and abiding by the IBC [Regulation 7]. But the board may refuse to grant the certificate, for which the applicant has the chance to explain, and upon that the IBBI may refuse or grant the certificate of registration [Regulation 8].

Code of Conduct for IPs:

The code of conduct for Insolvency Professionals (IPs) which also includes the RPs [as per the definition provided under Section 5 (27) of IBC, 2016] is provided under IBBI (Insolvency Professionals) Regulations, 2016.  Wherein such IPs are granted the certificate of registration by the board, but they are bound and subject to the code of conduct, as provided under Regulation 7 (2) (h) of the 2016 regulation. It states that the IPs must abide by the code provided under the First Schedule of the regulation, which enlists around 29 codes of conduct.

Resolution Professional as defined in Official Government Report(s):

The report released by the IBBI in its Bankruptcy Law Reforms Committee in the year 2015, volume 1 of the report acknowledged the role of the Resolution Professional, under the heading “5.3.2 The role of the Resolution Professional”.  Wherein, it is stated that an RP plays a vital role in the entire resolution process upon the formation of the CoC.  The RP oversees the entity's assets, and business operations, and consults the CoC for approval. They manage negotiations between the debtor and creditors, prepare an information memorandum, and facilitate resolution proposals, leaving the final decision to the CoC .

Resolution Professional as defined in Case Laws:

In the Supreme Court case, Swiss Ribbon Pvt. Ltd. v. UOI, it was held that an RP is merely a facilitator of the resolution process and that they cannot make decisions or act without the approval of the CoC.

In, ArcelorMittal India v Satish Kumar Gupta, the RP’s role is to examine/study and confirm the resolution and ensure that it meets the legal requirements of sub-section (2) of section 30 and that they have an administrative role and not adjudicatory.

In the case of, Essar Steel India Limited v. Satish Kumar Gupta, it was held that the RP’s responsibility is to manage the affairs of the corporate debtor as a going concern and call/convene a meeting of the CoC.

Sanjay Kumar Agarwal v. CBI, one of a kind case, where it questioned whether IPs can be considered “Public Servants”.  Wherein, here, an RP  was arrested after committing bribery under the Prevention of Corruption Act. Amid the arguments, the court finally held that RPs come under the ambit of a public servant as their duties and responsibilities under IBC are “public in nature”.

TYPES OF RESOLUTION PROFESSIONAL

ROLES	DESCRIPTION	APPOINTED BY
Interim Resolution Professional (IRP)	An IRP is appointed during the commencement of the corporate insolvency resolution process until the CoC is formed. IRP takes control of the corporate debtor’s assets and manages the business's functioning, operation, and continuation as a going concern.	They are appointed by the Adjudicating Authority, the NCLT, at the CIRP's commencement.
Resolution Professional (RP)	RP replaces the IRP upon meeting all the legal approvals and manages the resolution process after the IRP. Wherein, they conduct the process, prepare a memorandum examine the resolution plan, and ensure its accordance with IBC.	The CoC appoints them as permanent RP.

OFFICIAL DATABASE

Performance Evaluation of RPs in IBBI Database

The IBBI website maintains a performance evaluation database to assess each IP's performance during the CIRP process by mentioning their names and register numbers. They are categorized by their assignments as IPR and RP, as well as the statistics of the CRIP cases completed, and ongoing, and the time taken by them to resolve the CIRP cases. With each of them sub-categorized, for instance,

• The completed category is sub-categorized into whether the cases went for appeal/review or were withdrawn, resolved, or liquidated.
• In the same way, the time taken to resolve is categorized based on number of days.

This detailed data and its categorization with specific metrics provide insights into the individual IP’s performance regarding their efficiency as an IP and the outcome of the CIRP.

Performance of Individual IPs

The Quarterly Newsletter of the IBBI

The quarterly newsletters, it sheds light with regard to IBBI updates, legal framework, orders, corporate and individual processes, service providers, and examinations. It is important to note that the details provided in the newsletter and its data are as of June 30, 2024.

1. CIRP Process:

Quarterly report on status of CIRP cases. The information highlights the important factors to companies seeking a resolution process and eventually the effectiveness of the process is also understood. Also, when the resolution plan is not successfully implemented, companies could be seen going through liquidation as a last resort.

Data 1: Details of CIRP cases as of June 30, 2024 data from March 2017 to June 30, 2024, the number of CIRP cases, wherein, it categorizes the data starting from the cases admitted, to cases closed be it on appeal or review or settled.

Data 2: Year-wise and Stakeholder-wise Initiation of CIRPs data indicates the number of CIRPs initiated by the stakeholders i.e., Financial Creditors(FC), Operational Creditors (OC), And Corporate Debtors (CD), which is categorized year-wise.

2. Insolvency Professionals

Data on number of registered Insolvecy Professionsal (IPs)

Data 3: Registration and Cancellation of IP

Data 3: This table detailly enlists the number of registrations as well as the cancellations of IPs made over the years. Along with the cancellation being sub-categorized due to, disciplinary actions, failure to meet fit and proper person criteria, and death. As of June 30, 2024, the cancellation of IP registration has been less, and the increase in the no. of registrations indicates increased participation.

Data 4: Distribution of IPs as per their Eligibility

Data 4: As seen in Regulation 5 of IBBI (IPs) Regulations, 2016, this table provides the individuals registered who have such professional qualifications and experience. Wherein, members of ICAI have the highest no. of registered IPs.

Data 5: Replacement of IRP with RP

Data 5: The presented graph shows the replacement rates of IRPs with RPs, as provided in Section 22 of IBC which allows the CoC to decide whether to retain the IRP or appoint a new RP by a majority vote. Therein, this data represents 36% of CD, 33% of OC, and 22% of FC-initiated CIRPs, where IRPs are replaced as RPs, indicating the process is in alignment with the IBC framework.

IBBI’s Annual Report 2022-23

Data 6: Registration of service providers

Data 6: The attached data presents the registration of service providers with IBBI  as of March 2023, and a separate column presenting only for the financial year 2022-23. Wherein, it enlists the varied service providers with individual Registered Valuers showing the higher numbers followed by the individual registered IPs.

Data 7: Replacement of IRP with RP

Data 7: Again the annual report illustrates the replacement of IRP with RP as per section 22, but the data is only till March 2023. Wherein, the initially appointed in varied initiated CRIP cases are later replaced as per the voting in CoC.

RESEARCH THAT ENGAGES WITH RESOLUTION PROFESSIONAL

“Pivotal Role of Resolution Professional in CIRP Under IBC”, Russian Law Journal.

The above-mentioned research by Mahender Pal Arora, and Dr. Vikalp Shrivastava, on resolution professional, provides an in-depth analysis of the roles and responsibilities of RP during CIRP under the IBC, 2016. It doesn’t merely list the roles and duties but also provides for a complex analysis involved in performing such duties. Also, provides the challenges the RP faces during the resolution process such as balancing the interest of the involved parties/stakeholders and information gaps concerning the assets and business records.

At the same time provides ways in which the challenges can be overcome by proposing strategies for Resolution Professionals. Wherein, the efficacy of insolvency proceedings, depends on the effectiveness of RP.

“Independence of Resolution Professional”, HSA Advocates:

This particular research by Abhirup Dasgupta, critically examines and analyzes the independence of RPs as mandated by the IBC as one of its roles. It firstly, looks into the need for RPs to maintain independence while overseeing CIRP, emphasizing the risks of conflict of interest, which must be avoided, to ensure a fair and transparent resolution process. Wherein the research states the reasoning as well as the fact that RPs could lose their independence upon the influence of financial creditors, which in turn affects the decisions of the resolution plan.

It also draws judicial interpretations regarding RPs at the same examines their legal framework as to their code of conduct & eligibility criteria stating about the independence of RPs.

“Conduct of Insolvency Professionals: To whom so ever it may concern”, DAKSH India:

The research by Ritima Singh, delves into the wider ambit of Insolvency Professionals (IPs) accountability and conduct as an IRP, RP, and Liquidator. Upon highlighting the importance of managing and overseeing the corporate debtor’s affairs and resolution process. Also, examining the questionable conduct of RPs the research raises concerns about professional collusion and potential misconduct with the examples of case laws.

Further, to add on, the research presents data from the IBBI website that, there are about 4,400 IP individuals and 77 entities who have registered as IPs. While looking into the conduct of IPs, nearly 11 disciplinary actions have been initiated against IPs and have been disposed of by IBBI. (Dated as of June 13, 2024).

While analyzing the existing regulatory framework governing IPs, rightfully the research highlights that IBBI has the power to take disciplinary actions against the IP in case of misconduct and it is not by the adjudicating authority NCLT. Research argues for a “parallel power” being vested with the NCLT for investigating misconduct for a better mechanism, other than the IBBI and IPA.

It also further questions whether IPs come under the scope of “public servant” leading them to come under the ambit of the Prevention of Corruption Act and being accountable for their actions. But sheds light on the fact that there isn’t a clear mention of the Code in this regard.

“Role of Resolution Professional In a Corporate Insolvency Resolution Process In The Light of Corporate Governance”:

The research by Aashna Bhargava, on the role of RP takes a different take on the intricate relation between the IBC’s legal framework and further provides the implications of the framework on corporate governance. Further, analyzes the role of RP based on the IBC framework that they must be independent and maintain integrity to foster a transparent and accountable resolution process. All of the above-mentioned aspects of RP stem from the very corporate governance principles, which in turn indicate the importance of corporate governance in the CIRP. The research also highlights the case laws where corporate governance principles were applied and neglected during the CIRP.

CHALLENGES

The concept of Resolution Professional though being regulated by IBC, 2016, has its set of issues and challenges starting from the implementation part to the lack of data to rely on the status and efficiency of RP. A Resolution Professional, they are to conform with the provided legal requirements and code of conduct, in both IBC and other regulations, mere existence as rules isn’t enough, it is also required to be implemented effectively.

One of the challenges from the legal framework part is the IPs are not being held accountable by the adjudicating authority NCLT, but rather the disciplinary actions are being taken by the IPAs and IBBI. It is ironic when everything related to CIRP is adjudicated by NCLT except for the conduct of the RPs, this questions the accountability mechanism around RPs. But even under dual oversight, the misconduct of the IPs or the RPs has not been curbed effectively.

Most importantly independent factor of RPs is being questioned because such a factor is significant for the effective CIRP, wherein it is required that they are fair and unbiased while transparently conducting the resolution process. This challenge arises especially in the instance of conflict of interest due to prior ties (financial transactions/ties, employment) with the financial creditor or corporate debtor. This might influence the RP and compromise their decision-making authority and independence.

RPs play a major role in balancing the interests of the involved stakeholders, which becomes challenging owing to the lack of cooperation from the stakeholders which hamper the resolution process.

• It could be challenging that “the RP is bound to keep the company operational along with the corporate debtor during the CIRP” .
• It is also inconsistent as to the role of RPs in determining the creditor's claims as provided under Section 25 of IBC. Wherein there is a lack of consistent  judicial stance on this, as to whether they merely update/collate claims or determine the claims as well.

Also, the lack of data on RPs significantly questions the transparency part of the resolution process, because the IBBI website merely shows the registered IPs individuals, and entities. Expect, for the annual reports and newsletters there isn’t reliable data when analyzing RPs, to make sure whether they have effectively implemented their role and duties during the resolution process.

WAY AHEAD

Amid all these legal, procedural, and technical challenges on RPs, the most important is to implement the existing framework effectively. Starting from the the RP  being independent not just from the corporate debtors but also from other stakeholders like financial creditors, to make fair decisions.

As provided by DAKSH India,  in its research, the authority to handle misconduct by IPs should also be parallel with NCLT, which can gather and organize the facts and then pass their findings to IPA and IBBI.

Also, it becomes important for the courts to clarify the distinction between “collate” and “determination” of claims, thereby defining the powers of RPs more explicitly. Creating a system to filter claims against corporate debtors is crucial, as RPs currently have this responsibility. Recognizing that the determination of claims by RPs is administrative in nature could help address concerns and align their role with the objectives of the IBC, making the resolution procedure more efficient.