Analysis of provisions on Authorised Representative under Insolvency and Bankruptcy Code 2016 (IBC)

CIRP
Committee of creditors and meetings

Analysis of provisions on Authorised Representative under IBC

1. Authorised Representative

The amendment introduced by the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018 promulgated on 6 June 2018, it had provided for ability of appointment of Authorised Representative for “class of creditors”.  Section 21 (6A) (b) of the Code read with regulation 16A of the CIRP Regulation provide that where the corporate debtor has at least ten financial creditors in a class, the interim resolution professional shall offer a choice of three insolvency professionals and a creditor in the class may indicate its choice of an insolvency professional, from amongst the three, to act as its authorised representative. The insolvency professional, who is the choice of the highest number of creditors in the class, is appointed as the authorised representative of the creditors of the respective class. The authorised representative collects voting instructions from the respective class of creditors, attends the meetings of the committee of creditors (CoC) and casts vote in respect of the said class in accordance with the instructions he receives from the creditors.

2. Provisions of Authorised Representative under Committee of the Creditors

As per clause (b) sub-section (6A) of Section 21, where a financial debt is owed to a class of creditors exceeding the number as may be specified, other than the creditors covered under clause (a) or sub-section (6), the interim resolution professional shall make an application to the Adjudicating Authority along with the list of all financial creditors, containing the name of an insolvency professional, other than the interim resolution professional, to act as their authorised representative who shall be appointed by the Adjudicating Authority prior to the first meeting of the committee of creditors and such authorised representative shall attend the meetings of the committee of creditors, and vote on behalf of each financial creditor to the extent of his voting share.

As per Regulation-2(1)(aa), class of creditors means a class with at least ten financial creditors under clause (b) of sub-section (6A) of section 21 and the expression, “creditors in a class” shall be construed accordingly.

3. Choice of Authorised Representative[Reg.-4A]

On an examination of books of account and other relevant records of the corporate debtor, the interim resolution professional shall ascertain class(s) of creditors, if any. For representation of creditors in a class, the interim resolution professional shall identify three insolvency professionals who are-

(a) not his relatives or related parties;

(b) eligible to be insolvency professionals under regulation 3; and

(c) willing to act as authorised representative of creditors in the class.

The interim resolution professional shall obtain the consent of each insolvency professional identified as above to act as the authorised representative of creditors in the class in Form AB of the Schedule.

4. Appointment [Reg-16A]

  • The interim resolution professional shall select the insolvency professional, who is the choice of the highest number of financial creditors in the class in Form CA received under sub-regulation (1) of regulation 12(claim received on or before the last date mentioned in the public announcement), to act as the authorised representative of the creditors of the respective class.
  • The choice for an insolvency professional to act as authorised representative in Form CA received under sub-regulation (2)[claim received after the time stipulated in the public announcement] of regulation 12 shall not be considered.
  • The interim resolution professional shall apply to the Adjudicating Authority for appointment of the authorised representatives within two days of the verification of claims received under sub-regulation (1) of regulation 12. Any delay in appointment of the authorised representative for any class of creditors shall not affect the validity of any decision taken by the committee.
  • The interim resolution professional shall provide the list of creditors in each class to the respective authorised representative appointed by the Adjudicating Authority. The interim resolution professional or the resolution professional, as the case may be, shall provide an updated list of creditors in each class to the respective authorised representative as and when the list is updated.
  • The authorised representative shall have no role in receipt or verification of claims of creditors of the class he represents.
  • The interim resolution professional or the resolution professional, as the case may be, shall provide electronic means of communication between the authorised representative and the creditors in the class.

 

5. Remuneration[Sec. 21(6B)]

 The remuneration payable to the authorised representative-

(i) under clauses (a) and (c) of sub-section (6A), if any, shall be as per the terms of the financial debt or the relevant documentation; and

(ii) under clause (b) of sub-section (6A) shall be as specified which shall be jointly borne by the financial creditors.

 

6. Voting in respect to Authorised Representative

Sec. 21 (7) The Board may specify the manner of voting and the determining of the voting share in respect of financial debts covered under sub-sections (6) and (6A).

Note: as per proviso to Sec. 21(2), a financial creditor or the authorised representative of the financial creditor referred to in sub-section (6) or sub-section (6A) or sub-section (5) of section 24, if it is a related party of the corporate debtor, shall not have any right of representation, participation or voting in a meeting of the co1mmittee of creditors. However, this conditions is not apply to a financial creditor, regulated by a financial sector regulator, if it is a related party of the corporate debtor solely on account of conversion or substitution of debt into equity shares or instruments convertible into equity shares or completion of such transactions as may be prescribed, prior to the insolvency commencement date.

As per Regulation 25A, the authorised representative shall cast his vote in respect of each financial creditor or on behalf of all financial creditors he represents in accordance with the provisions of sub-section (3) or sub-section (3A) of section 25A, as the case may be. The voting share of a creditor in a class shall be in proportion to the financial debt which includes an interest at the rate of eight per cent per annum unless a different rate has been agreed to between the parties. The authorised representative shall circulate the agenda to creditors in a class and announce the voting window at least twenty-four hours before the window opens for voting instructions and keep the voting window open for at least twelve hours.

7. Fee for attending the meetings

The authorised representative of creditors in a class shall be entitled to receive fee for every meeting of the committee attended by him in the following manner, namely:

Number of creditors in the class Fee per meeting of the committee (Rs.)
10-100 15,000
101-1000 20,000
More than 1000 25,000

8. Circulars/Notifications

IBBI Circular No. IBBI/CIRP/015/2018 dt. 13.07.2018 regarding appointment of Authorised Representative for Classes of Creditors under section 21 (6A) (b) of the Code:

Section 21 (6A) (b) of the Insolvency and Bankruptcy Code, 2016 (Code) read with regulation 16A (1) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (Regulations) provide that where the corporate debtor has at least ten financial creditors in a class, the interim resolution professional shall offer a choice of three insolvency professionals and a creditor in the class may indicate its choice of an insolvency professional, from amongst the three, to act as its authorised representative. The insolvency professional, who is the choice of the highest number of creditors in the class, is appointed as the authorised representative of the creditors of the respective class. The authorised representative collects voting instructions from the respective class of creditors, attends the meetings of the committee of creditors (CoC) and casts vote in respect of the said class in accordance with the instructions he receives from the creditors.

Section 21 (6A) (b) of the Code read with regulation 16A of the Regulations provide for a simplified mechanism of representation of financial creditors through authorised representatives, as detailed in Para 1 above, and are, therefore, matters of procedure. It is necessary that an ongoing corporate insolvency resolution process, where creditors belonging to a class are otherwise not represented in the CoC, uses this simplified mechanism, irrespective of the stage of the process. The resolution professional, who exercises the powers and performs the duties as vested or conferred on the interim resolution professional under section 23 (2) of the Code, shall facilitate representation through authorised representative(s).

It is, accordingly, clarified that wherever the approval of resolution plan under regulation 39 (3) of the Regulations is at least 15 days away, the resolution professional shall expeditiously obtain, by electronic means, the choice of the insolvency professional from creditors in a class to act as the authorised representative of the class and proceed further in the manner as specified in regulation 16A of the Regulations.

This Circular is issued in exercise of powers under section 196 (1) (aa) of the Insolvency and Bankruptcy Code, 2016, in consultation with the Ministry of Corporate Affairs.

3 comments

  1. The above discussion focused entirely on the AR for class of Creditors.
    The matter regarding AR of the CoC member is a serious issue. Usually CoC members ( mainly banks) depute their employees as their AR, who are having little knowledge of insolvency system, flouting the provisions of section 24(5), leading to unprofessional decisions of CoC.
    This issue needs to be debated in length.

  2. Sir in fact for CD provision for authorized representative shall be introduced in IBC and if COC and IRP/IP shall take appropriate reprsenation in COC meeting. This is critical where in Suspended BOD are allowed to attend CoC meeting where in this will a great relief to MSME sector were by if informant IP/ advocate shall be allowed. Many a time timely stick to MSME sector will be imence help for revival or disposal and or liquidation as going concern unit. In today unptrcidental economic activity to be revitalize and assets under IBC can be maximize to put in use. Suggestions from group is invited.

  3. The above discussion focused entirely on the AR for class of Creditors.
    The matter regarding AR of the CoC member is a serious issue. Usually CoC members ( mainly banks) depute their employees as their AR, who are having little knowledge of insolvency system, flouting the provisions of section 24(5), leading to unprofessional decisions of CoC.
    This issue needs to be debated in length.

Leave a Reply

Your email address will not be published.

App

Install
×