Resolution Professional to conduct the CIRP and manage the operations of the Corporate Debtor under Insolvency and Bankruptcy Code 2016 (IBC)

CIRP
RP to conduct the CIRP and manage the operations

Resolution Professional to conduct the CIRP and manage the operations of the Corporate Debtor

 

I. Resolution professional to conduct CIRP[Sec. 23]

The resolution professional shall conduct the entire CIRP and manage the operations of the corporate debtor during the CIRP period. He shall continue to manage the operations of the corporate debtor after the expiry of the CIRP period, until an order approving the resolution plan under sub-section (1) of section 31 or appointing a liquidator under section 34 is passed by the Adjudicating Authority.

The resolution professional shall exercise powers and perform duties as are vested or conferred on the IRP under this Chapter. In case of any appointment of a resolution professional under sub-sections (4) of section 22, the IRP shall provide all the information, documents and records pertaining to the corporate debtor in his possession and knowledge to the resolution professional.

What is insolvency resolution process period i.e. CIRP Period: 

Insolvency resolution process period means the period of 180 days beginning from the insolvency commencement date and ending on 180th day;.[Sec. 5(14)].

 

II. Duties of Resolution Professional[Sec. 25 & 26]

It shall be the duty of the resolution professional to preserve and protect the assets of the corporate debtor, including the continued business operations of the corporate debtor.

Consider the question of conversion of security held with bank in Liquidation stage- In the matter of Sajeve Bhushan Deora Vs. Axis Bank Ltd. & Ors. application before NCLT New Delhi Bench filed by RP to release the margin money held as Fixed Deposits against letters of credits established by Axis Bank on behalf of the Corporate Debtor to meet CIRP cost. The NCLT denied and held that the assets of the company, liquid or fixed should not be dissipated and shall be taken into consideration at the liquidation stage. The CIRP costs should be met by the COC. At this stage we do not consider that the prayer of the RP should be allowed. NCLAT new Delhi Bench upheld the decision of the NCLT.

Resolution Professional shall undertake the following actions:

(a) take immediate custody and control of all the assets of the corporate debtor, including the business records of the corporate debtor;

(b) represent and act on behalf of the corporate debtor with third parties, exercise rights for the benefit of the corporate debtor in judicial, quasi-judicial or arbitration proceedings;

(c) raise interim finances subject to the approval of the committee of creditors under section 28;

(d) appoint accountants, legal or other professionals in the manner as specified by Board;

(e) maintain an updated list of claims;

(f) convene and attend all meetings of the committee of creditors;

(g) prepare the information memorandum in accordance with section 29;

If Corporate Debtor is a MSME, it is not necessary for the CoC to follow all the procedures under the CIRP In  the matter of Saravana Global Holdings Ltd. & Anr. Vs. Bafna Pharmaceuticals Ltd. & Ors. it was submitted that as per Section 25(2)(h) of the Code, it is the duty of the Resolution Professional to invite prospective Resolution Applicants who fulfil criteria laid down by him with the approval of the CoC. Once the Expression of Interest has been published under Regulation 36A and prospective Resolution Applicants have been invited, the Information Memorandum prepared under Section 29 of the Code shall be shared with them. NCLAT held that NCLAT held that in exceptional circumstances, if the Corporate Debtor is MSME, it is not necessary for the Promoters to compete with other Resolution Applicants to regain the control of the Corporate Debtor. Further held that it is open to the CoC to defer the process of issuance of Information Memorandum, if the Promoter of MSME offers a viable and feasible plan maximising the assets of the Corporate Debtor and balancing all the stakeholders. For such purpose, it is not required to follow all the procedure as the case for accepting the proposal under Section 12A of the Code.

 

(h) invite prospective resolution applicants, who fulfil such criteria as may be laid down by him with the approval of committee of creditors, having regard to the complexity and scale of operations of the business of the corporate debtor and such other conditions as may be specified by the Board, to submit a resolution plan or plans.

(i) present all resolution plans at the meetings of the committee of creditors;

(j) file application for avoidance of transactions in accordance with Chapter III, if any;

The filing of an avoidance application by the resolution professional shall not affect the proceedings of the CIRP.[Sec. 26].

(k) such other actions as may be specified by the Board.

 

Hon’ble Supreme Court looking to the duties and responsibilities as per Section 25, in the matter of Anuj Jain IRP for Jaypee Infratech Limited Vs. Axis Bank Limited etc illustrated step to be taken by RP under Section 43 of the Code. Access here. 

In the matter of M/s Embassy Property Developments Pvt. Ltd. Vs. State of Karnataka & Ors.  NCLAT held that section 25 of the Code shows that wherever the corporate debtor has to exercise rights in judicial, quasi­judicial proceedings, the resolution professional cannot short­circuit the same and bring a claim before NCLT taking advantage of Section 60(5). Therefore in the light of the statutory scheme as culled out from various provisions of the IBC, 2016 it is clear that wherever the corporate debtor has to exercise a right that falls outside the purview of the IBC, 2016 especially in the realm of the public law, they cannot, through the resolution professional, take a bypass and go before NCLT for the enforcement of such a right.

 

III. Preservation of records[Reg. 39A]

The interim resolution professional or the resolution professional, as the case may be, shall preserve a physical as well as an electronic copy of the records relating to CIRP of the corporate debtor as per the record retention schedule as may be communicated by the Board in consultation with Insolvency Professional Agencies.

 

IV. Appointment of Registered Valuers.[Reg.-27]

The resolution professional shall within 7 days of his appointment, but not later than forty-seventh day from the insolvency commencement date, appoint two Registered Valuers to determine the fair value and the liquidation value of the corporate debtor in accordance with regulation 35:

Disqualification for appointment as Registered Valuer:

The following persons shall not be appointed as Registered Valuers:

(a) a relative of the resolution professional;

(b) a related party of the corporate debtor;

(c) an auditor of the corporate debtor at any time during the five years preceding the insolvency commencement date; or

(d) a partner or director of the insolvency professional entity of which the resolution professional is a partner or director.

 

V. Determination of Fair value and Liquidation value[Reg.-35]

Fair value means the estimated realizable value of the assets of the corporate debtor, if they were to be exchanged on the insolvency commencement date between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing and where the parties had acted knowledgeably, prudently and without compulsion.[CIRP Reg.-2(1)(hb)]

Liquidation value means the estimated realizable value of the assets of the corporate debtor, if the corporate debtor were to be liquidated on the insolvency commencement date.[CIRP Reg.-2(1)(k)].

Fair value and liquidation value shall be determined in the following manner:-

(a) the two registered valuers appointed under regulation 27 shall submit to the resolution professional an estimate of the fair value and of the liquidation value computed in accordance with internationally accepted valuation standards, after physical verification of the inventory and fixed assets of the corporate debtor;

(b) if in the opinion of the resolution professional, the two estimates of a value are significantly different, he may appoint another registered valuer who shall submit an estimate of the value computed in the same manner; and

(c) the average of the two closest estimates of a value shall be considered the fair value or the liquidation value, as the case may be.

After the receipt of resolution plans in accordance with the Code and these regulations, the resolution professional shall provide the fair value and the liquidation value to every member of the committee in electronic form, on receiving an undertaking from the member to the effect that such member shall maintain confidentiality of the fair value and the liquidation value and shall not use such values to cause an undue gain or undue loss to itself or any other person and comply with the requirements under sub-section (2) of section 29:

The resolution professional and registered valuers shall maintain confidentiality of the fair value and the liquidation value.

 

VI. Preferential and other transactions[Reg.-35A]

On or before the seventy-fifth day of the insolvency commencement date, the resolution professional shall form an opinion whether the corporate debtor has been subjected to any transaction covered under sections 43, 45, 50 or 66.

[Details of Sec. 43,45,50,66]

Where the resolution professional is of the opinion that the corporate debtor has been subjected to any transactions covered under sections 43, 45, 50 or 66, he shall make a determination on or before the one hundred and fifteenth day of the insolvency commencement date, under intimation to the Board.

 

VII. Transfer of debt due to creditors[Reg-28]

In the event a creditor assigns or transfers the debt due to such creditor to any other person during the insolvency resolution process period, both parties shall provide the IRP or the resolution professional, as the case may be, the terms of such assignment or transfer and the identity of the assignee or transferee. The resolution professional shall notify each participant and the Adjudicating Authority of any resultant change in the committee within two days of such change. Where the resolution professional makes a determination, he shall apply to the Adjudicating Authority for appropriate relief on or before the one hundred and thirty-fifth day of the insolvency commencement date.

 

VIII. Sale of assets outside the ordinary course of business[Reg. 29]

The resolution professional may sell unencumbered asset(s) of the corporate debtor, other than in the ordinary course of business, if he is of the opinion that such a sale is necessary for a better realisation of value under the facts and circumstances of the case. The book value of all assets sold during CIRP period in aggregate under this sub-regulation shall not exceed ten percent of the total claims admitted by the IRP. A sale of assets under this Regulation shall require the approval of the committee by a vote of sixty-six per cent of voting share of the members.

A bona fide purchaser of assets sold under this Regulation shall have a free and marketable title to such assets notwithstanding the terms of the constitutional documents of the corporate debtor, shareholders’ agreement, joint venture agreement or other document of a similar nature.

 

IX. Assistance of local district administration[Reg-30]

The interim resolution professional or the resolution professional, as the case may be, may make an application to the Adjudicating Authority for an order seeking the assistance of the local district administration in discharging his duties under the Code or these Regulations.

NCLAT in the matter of Ajay Kumar Vs. Shree Sai Industries Pvt. Ltd. & Anr. held that if the Promoters do not cooperate & handover the necessary documents & information, AA will take the help of the Superintendent of Police of the concerned area to ensure that the possession of the Corporate Debtor & all the records are handed over to the RP and, if necessary, take criminal action against the Promoters.

 

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