THE ROLE OF INSOLVENCY PROFESSIONALS IN THE RESOLUTION PROCESS

The enactment of the Insolvency and Bankruptcy Code (IBC) in 2016 marked a significant milestone in India’s corporate restructuring and insolvency landscape. It introduced a structured, time-bound process for resolving corporate distress, aiming to balance the interests of creditors, businesses, and the economy at large. One of the critical elements of the IBC framework is the role of Insolvency Professionals (IPs). Over the last 20 years, The Law Codes has been actively engaged in advising clients on matters related to insolvency and bankruptcy, and in that journey, the firm has witnessed firsthand the indispensable role that IPs play in ensuring an efficient and fair resolution process. This article delves into the crucial role of insolvency professionals in the resolution process and highlights how their expertise and impartiality contribute to the effective functioning of the IBC.

UNDERSTANDING INSOLVENCY PROFESSIONALS

Insolvency professionals are licensed individuals who possess the qualifications and expertise to manage the insolvency and bankruptcy proceedings of a distressed company. Under the IBC, IPs are appointed to oversee the process of resolving insolvency, managing the company’s assets, and ensuring compliance with legal requirements. Their primary role is to act as an independent and neutral third party to facilitate the insolvency resolution process.

IPs are appointed in two key stages:

Insolvency Resolution Process (IRP): In this phase, an IP is appointed as the Resolution Professional (RP) to manage the day-to-day operations of the insolvent company, assess the financial position of the company, and initiate the process of drafting a resolution plan.
Liquidation Process: If the resolution process fails and the company is to be liquidated, the IP acts as the liquidator, managing the assets of the company and ensuring that the proceeds are distributed to creditors in accordance with the law.

KEY ROLES AND RESPONSIBILITIES OF INSOLVENCY PROFESSIONALS

Independent Management of the Insolvent Company

One of the most crucial responsibilities of an insolvency professional is to take control of the distressed company during the insolvency resolution process. Upon their appointment, the RP assumes the role of the management of the company, and the existing board of directors is suspended. The RP’s role is to ensure that the company is run in a manner that maximizes its value during the resolution process.

This includes overseeing the operations of the company, ensuring compliance with applicable laws, and making critical decisions regarding its financial health. The RP also plays a key role in identifying the company’s assets and liabilities, assessing its financial position, and determining the best course of action for restructuring or liquidation.

Preparation and Evaluation of the Resolution Plan

A significant aspect of the insolvency process is the development of a resolution plan aimed at reviving the distressed business. The RP plays a central role in managing the entire process, including soliciting and evaluating resolution plans submitted by potential resolution applicants.

The RP is responsible for reviewing the feasibility and viability of the proposed plans, ensuring they meet the criteria set by the IBC and the interests of creditors. They also facilitate negotiations between the various stakeholders, including financial creditors, operational creditors, and the resolution applicants, to ensure that the resolution plan is fair and balanced.

Representation of Stakeholders’ Interests

The RP acts as a representative of all stakeholders during the insolvency process. They facilitate meetings and discussions with the Committee of Creditors (CoC), which includes the financial creditors, to ensure that decisions are made in the best interest of the creditors while balancing the interests of other stakeholders, such as employees, suppliers, and shareholders.

The RP’s role is to maintain transparency, ensure compliance with the timelines prescribed under the IBC, and act impartially. They are responsible for ensuring that the resolution process adheres to the legal framework and provides fair treatment to all parties involved.

Facilitating the Approval of the Resolution Plan

Once a resolution plan is prepared, it must be approved by the Committee of Creditors (CoC) and the National Company Law Tribunal (NCLT). The RP plays a pivotal role in managing the approval process. They ensure that the resolution plan meets the requirements of the IBC, including providing a reasonable recovery to creditors, protecting the interests of stakeholders, and ensuring the viability of the company.

The RP also communicates the resolution plan to the NCLT and ensures that all documentation is in order. If necessary, they make modifications to the plan based on feedback from the CoC or the NCLT, ensuring a smooth and compliant resolution process.

Managing the Liquidation Process

If a resolution plan is not approved, or if the company’s assets are deemed non-viable for restructuring, the insolvency process moves to liquidation. In this case, the RP becomes the liquidator, and their role shifts to managing the liquidation of the company’s assets.

The liquidator is tasked with identifying and taking control of the company’s assets, selling them in a fair and transparent manner, and distributing the proceeds to creditors according to the waterfall mechanism prescribed by the IBC. This process requires a thorough understanding of asset valuation, legal compliance, and creditor rights.

Ensuring Compliance with Legal and Regulatory Requirements

Throughout the insolvency process, the insolvency professional ensures that all proceedings comply with the provisions of the IBC and other relevant laws. They are responsible for filing necessary documents with the National Company Law Tribunal (NCLT), liaising with regulatory authorities, and ensuring the accuracy and completeness of all filings.

Additionally, the RP must also adhere to the code of conduct prescribed by the Insolvency and Bankruptcy Board of India (IBBI), which mandates high standards of professionalism, integrity, and impartiality. Failure to comply with these regulations could result in penalties or disqualification.

THE CHALLENGES FACED BY INSOLVENCY PROFESSIONALS

Despite the critical role they play, insolvency professionals often face several challenges during the resolution process:

Stakeholder Conflicts: The CoC may sometimes have conflicting interests, making it difficult for the RP to reach a consensus on the best course of action. Managing such conflicts and ensuring a fair process can be challenging.
Lack of Resolution Applicants: In some cases, there may be a lack of resolution applicants or investors interested in reviving a distressed company. This can delay the process or result in liquidation.
Legal Complexities: The insolvency process is often complex, involving intricate legal and financial matters. An RP must navigate through these complexities while ensuring compliance with the law.
Pressure from Creditors: Creditors may exert pressure on the RP to ensure favorable outcomes for their interests. The RP must balance these demands while remaining impartial and ensuring fairness.

CONCLUSION

Insolvency professionals play a central role in the successful implementation of the Insolvency and Bankruptcy Code (IBC). They are the key facilitators of the resolution process, ensuring that the interests of all stakeholders are balanced and that the process is conducted efficiently and fairly. At The Law Codes, with over 20 years of experience in insolvency and bankruptcy law, we understand the critical role that insolvency professionals play in shaping the future of distressed companies and their creditors. Our firm’s expertise, impartiality, and commitment to legal compliance ensure that the resolution process is conducted with integrity, benefiting not only businesses but the broader economy as well.