The Insolvency and Bankruptcy Code, 2016 (Code) is considered as the biggest economic reform next only to GST. It 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.
Insolvency Professional is appointed to conduct insolvency resolution process in accordance with the procedure laid down in the Code. He is a professional endowed with specialised knowledge, training and recognised 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 have a critical role in transactions under the Code.
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.
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.
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 enrol 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.
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.
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.