The Insolvency Resolution Professional ( IRP ) plays a critical role in the Insolvency and Bankruptcy Code ( IBC ), 2016. As the initial administrator of the corporate insolvency resolution process ( CIRP ), the IRP takes charge of a financially distressed company to ensure its assets are preserved and the resolution process is carried out systematically. The IRP acts as the initial custodian of the corporate debtor’s assets, guiding the CIRP, and facilitating creditor consensus for resolution plans.
The IRP is appointed by the National Company Law Tribunal ( NCLT ) upon the acceptance of an insolvency application filed by creditors (financial or operational) or the corporate debtor. Once appointed, the IRP takes over management of the debtor’s assets and business, assuming the powers of the board of directors and overseeing all operations to ensure there’s no asset stripping or further deterioration.
Boost Your GST Skills: Master Notice Responses & Drafting – Enroll Now
The CIRP is triggered when an application for insolvency is filed with the National Company Law Tribunal ( NCLT ) by a creditor, the debtor itself, or other authorized parties. In the application, the applicant proposes an individual to act as the IRP. This person should be a qualified insolvency professional registered with the Insolvency and Bankruptcy Board of India ( IBBI ). Upon admitting the insolvency petition, the NCLT confirms the appointment of the proposed IRP or may request a different individual, ensuring no conflicts of interest.
Once appointed, the IRP takes over the management of the corporate debtor and assumes all powers of the board of directors or partners. They exercise these powers independently and have authority over day-to-day operations. The NCLT issues a moratorium order under Section 14 of the IBC, which provides temporary protection to the corporate debtor by prohibiting actions like lawsuits, debt recovery, or property transactions. This moratorium supports the IRP’s effort to stabilize the company without interference.
Within three days of appointment, the IRP makes a public announcement calling for claims from creditors, an essential step to identify and invite all creditors for claim submissions.
The appointment and commencement of the IRP’s role mark the initiation of CIRP, placing the IRP at the helm of the corporate debtor’s management to ensure effective asset preservation, claims verification, and a clear pathway for either resolution or liquidation. This process upholds creditor confidence and maximizes the chance of successful debtor resolution.
Boost Your GST Skills: Master Notice Responses & Drafting – Enroll Now
As the Insolvency Resolution Professional ( IRP ), one of the core responsibilities under the Insolvency and Bankruptcy Code ( IBC ), 2016 is to act as the custodian of the corporate debtor’s assets during the Corporate Insolvency Resolution Process ( CIRP ). The IRP is responsible for safeguarding, maintaining, and managing these assets, ensuring that they are preserved in the best interest of all stakeholders involved.
Upon the NCLT’s admission of an insolvency application, the IRP takes control of the corporate debtor’s assets, effectively replacing the board of directors or any other managing authority. The IRP is vested with all powers over the debtor’s assets, including operational management, which means they make all critical decisions related to asset preservation, usage, and value maintenance. As custodian, the IRP’s primary role is to ensure that no assets are transferred, sold, or diluted without the authorization of the Committee of Creditors ( CoC ), protecting the corporate debtor’s estate from potential mismanagement.
One of the IRP’s initial tasks is to prepare a detailed inventory of all assets, which includes fixed assets, current assets, investments, and any intangible assets. To establish a clear financial picture, the IRP may collaborate with valuation experts to estimate the current worth of these assets, providing a basis for informed decision-making by the CoC. The IRP also assesses the assets in light of verified liabilities and claims, ensuring a balanced view of available resources for potential distribution if liquidation becomes necessary.
Boost Your GST Skills: Master Notice Responses & Drafting – Enroll Now
To maintain the corporate debtor as a “going concern,” the IRP ensures uninterrupted operations, managing expenses and overseeing production, supply chains, and employee welfare to maintain asset value. Physical security measures, maintenance activities, and insurance renewals are managed by the IRP to prevent deterioration or damage to assets. The IRP ensures that assets are safeguarded from external claims or unauthorized actions, supported by the moratorium imposed by the NCLT, which prohibits actions like lawsuits or asset transfers against the corporate debtor.
The Committee of Creditors ( CoC ) is a pivotal body in the Corporate Insolvency Resolution Process ( CIRP ) under the Insolvency and Bankruptcy Code ( IBC ), 2016 which constituted by the Insolvency Resolution Professional ( IRP ), the CoC represents the financial creditors and plays a crucial role in deciding the future course of the corporate debtor undergoing insolvency.
Upon assuming control of the corporate debtor, the IRP is tasked with forming the CoC as one of the first steps in the CIRP. This must be done within 30 days of the IRP’s appointment. The IRP invites and verifies claims from creditors, which helps determine the total debt owed and identifies the eligible creditors for inclusion in the CoC.
Primarily, the CoC consists of financial creditors, who are creditors to whom a financial debt is owed, such as banks and financial institutions. Operational creditors ( like vendors or suppliers ) are generally excluded from the CoC, except in specific cases where there are no financial creditors. The CoC primarily comprises financial creditors of the corporate debtor. These creditors have voting rights proportional to the amount of their claims verified by the IRP.If the corporate debtor has no financial creditors, operational creditors may form the CoC. They also attend CoC meetings but have limited rights and do not usually hold voting power, unless specifically permitted.
Boost Your GST Skills: Master Notice Responses & Drafting – Enroll Now
Within seven days of its constitution, the IRP convenes the first CoC meeting. This meeting establishes a plan for how the CoC will proceed in managing the CIRP. In the first meeting, the CoC decides whether the IRP will continue as the Resolution Professional ( RP ) for the remainder of the CIRP or if a new RP should be appointed.
The Resolution Professional ( RP ) plays a critical role in facilitating Resolution Plans within the Corporate Insolvency Resolution Process ( CIRP ) under the Insolvency and Bankruptcy Code ( IBC ), 2016. Acting as the intermediary between the distressed company, creditors, and potential resolution applicants, the RP ensures that the process is transparent, compliant with legal standards, and ultimately, aimed at reviving the corporate debtor.
After the Committee of Creditors ( CoC ) decides to seek resolution plans, the RP issues a public announcement inviting potential resolution applicants ( RAs ) to submit their plans. The RP screens prospective applicants based on eligibility criteria set under Section 29A of the IBC, which bars certain defaulters and related parties from submitting plans. The RP prepares and shares an information memorandum with interested applicants. This document provides vital financial and operational details about the corporate debtor, enabling applicants to make informed proposals.
The RP often establishes a secure VDR containing relevant information about the corporate debtor’s financial, legal, and operational status. This allows potential applicants to perform thorough due diligence.
Transparency and Confidentiality: The RP ensures that all data shared is transparent yet secure, protecting sensitive information and ensuring fairness among competing applicants.
The RP reviews each submitted resolution plan for compliance with IBC requirements, ensuring it considers all stakeholders and includes necessary provisions for repayment or restructuring. The RP ensures that the plan aligns with the eligibility and evaluation criteria set by the CoC, covering aspects like feasibility, viability, and financial backing.
Boost Your GST Skills: Master Notice Responses & Drafting – Enroll Now
After evaluating all plans, the RP shortlists and submits compliant plans to the CoC. The RP may provide recommendations or insights to aid the CoC in its decision-making process. During CoC meetings, the RP presents resolution plans, answers creditor queries, and clarifies details to support informed CoC decision-making. If the CoC requests modifications or clarifications, the RP facilitates negotiations between the CoC and applicants. This may involve restructuring timelines, proposing alternative repayment structures, or seeking additional guarantees.
The Resolution Professional ( RP ) has significant responsibilities related to compliance and reporting within the Corporate Insolvency Resolution Process ( CIRP ) under the Insolvency and Bankruptcy Code ( IBC ), 2016. These duties ensure transparency, adherence to legal requirements, and provide necessary information to stakeholders. Compliance and reporting activities by the RP include managing statutory requirements, updating stakeholders on CIRP progress, and ensuring that all actions align with the IBC framework.
The RP ensures that the CIRP is conducted in accordance with the IBC and regulations issued by the Insolvency and Bankruptcy Board of India ( IBBI ). This includes meeting procedural timelines, handling claims, and maintaining records. The RP prepares a comprehensive Information Memorandum detailing the corporate debtor’s assets, liabilities, financials, and operational details. This document provides necessary insights for potential resolution applicants to assess the debtor’s position.
Accuracy and Disclosure: The RP ensures that the IM is accurate and includes all material information. Failure to provide correct information could affect the credibility of the CIRP and may lead to regulatory penalties.
The RP provides periodic updates to the CoC on the progress of CIRP, including details on claims verification, asset valuation, and the status of resolution plans.
Boost Your GST Skills: Master Notice Responses & Drafting – Enroll Now
Minutes and Documentation of CoC Meetings: The RP prepares and maintains records of all CoC meetings, including minutes, resolutions passed, and voting records. This documentation is crucial for transparency and legal compliance.
Any decision approved by the CoC, such as accepting a resolution plan or liquidating assets, must be implemented by the RP, and regular updates are provided to the CoC. The RP submits progress reports to the National Company Law Tribunal ( NCLT ) periodically, detailing the CIRP’s status and any key developments.
The IRP/RP must act in the best interest of creditors and stakeholders without bias, ensuring that the resolution process is conducted with integrity and transparency. They are expected to maintain a neutral stance, acting neither as a representative of the creditors nor as a trustee for the debtor. This independence is vital for a fair resolution process.
Situations may arise where fulfilling legal duties conflicts with ethical standards, such as when a CoC decision may seem financially beneficial but ethically questionable for smaller creditors or employees. The RP must navigate these situations carefully, providing stakeholders with complete information and recommending actions aligned with the spirit of the IBC. The RP’s duties extend beyond just creditors or the corporate debtor, as they also have a broader responsibility to uphold public trust in the insolvency process. By promoting transparency and compliance, the RP contributes to the IBC’s aim of preserving business viability and maximizing value for stakeholders.
Boost Your GST Skills: Master Notice Responses & Drafting – Enroll Now
Insolvency Resolution Professionals ( IRPs ) face numerous challenges when managing the Corporate Insolvency Resolution Process ( CIRP ) under the Insolvency and Bankruptcy Code ( IBC ), 2016. Their role as intermediaries between creditors and debtors brings complex legal, operational, and financial hurdles that require meticulous planning and expertise.
Time Constraints: The IBC mandates a strict timeline of 180 days ( extendable to 330 days ) to complete the CIRP. This often puts significant pressure on IRPs, especially in cases with large debts or complex assets.
Resistance from Management and Employees: The IRP may face resistance from the existing management and employees, especially when taking over control or enforcing asset preservation measures.
Legal and Operational Hurdles: IRPs often encounter legal challenges, such as disputes over claims, multiple litigations, or non-cooperative stakeholders, which can hinder smooth operation.
Conflicts with Creditors: Balancing the interests of different creditors, particularly operational and financial creditors, can be difficult, as they may have conflicting interests in the resolution process.
The IRP plays an indispensable role in the effective implementation of the IBC by acting as the initial custodian of the corporate debtor’s assets, guiding the CIRP, and facilitating creditor consensus for resolution plans. While challenges persist, the IRP’s functions are pivotal in improving creditor confidence, ensuring legal compliance, and maximizing asset value through the resolution or revival of financially distressed companies.
Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
