Centre for Insolvency & Bankruptcy

Enactment of the Insolvency and Bankruptcy Code is an important reform for India. The Government moved at an unprecedented pace to enact and operationalise the Code. The IBBI chartered the course of its implementation with great zeal while the Adjudicating Authority, that is, the National Company Law Tribunal (hereinafter, “NCLT”) and the National Company Law Appellate Tribunal (hereinafter, “NCLAT”) rose to the occasion with quick decision- making majorly aligning with the objectives of the Code. The Supreme Court has already delivered many landmark judgments in this short period. Other stakeholders responded with enthusiasm to support the Code. Indeed, so much so that the Government decided to take a leap of faith, making way for the top dozen non-performing assets (hereinafter, “NPAs”), comprising 25 per cent of the total NPAs in the books of Indian banks, to be pushed into insolvency proceedings.

The Government keenly observed developments and experience in the insolvency process of the cases filed and rapidly brought in changes to plug the gaps spotted in the Code to make the process and outcomes more efficient and efficacious. Two sets of amendments were introduced in the Code, one in November 2017 and the second in June 2018 by way of an Ordinance, as Parliament was not in session in these months. The later amendment was based on recommendations of a high- powered reforms committee set up by the Government. More recently, the Government has placed for comments in public domain the draft of a cross-border insolvency law based on the UNICITRAL Model Law on Cross-Border Insolvency.

The IBBI has been at the forefront of creating the regulatory architecture of the new insolvency law. It has set the bar high right from the start and the market is vying to match its pace rather than the reverse of it. Over a half-dozen amendments have been introduced since December 2016 to streamline the insolvency resolution and liquidation processes, and provide the soft and hard infrastructure to support the new insolvency framework. The IPs have been quick learners and significant progress has been made in creating skilled and trained IPs in the market. In less than two years of implementation of the Code, green shoots have emerged. The enactment of the Code and its implementation efforts have received many accolades. Recently, India won the Global Restructuring Review's "Most Improved Jurisdiction" Award for the year 2018.

The Insolvency Professionals (hereinafter, "IPs") constitute one of the four key pillars of the insolvency regime under the Insolvency and Bankruptcy Code 2016 (hereinafter, "Code"), other three being the Adjudicating Authority (National Company Law Tribunal), the Insolvency and Bankruptcy Board of India (hereinafter, "IBBI"), and the Information Utilities. An IP is a key institution of insolvency regime and plays a crucial role in resolution, liquidation and bankruptcy process of companies, limited liability partnerships and individuals running partnership and proprietorship firms and other individuals. The Bankruptcy Law Reforms Committee observes in its report:“This entire insolvency and bankruptcy process is managed by a regulated and licensed professional namely the Insolvency Professional or an IP, appointed by the adjudicator. In an insolvency and bankruptcy resolution process driven by the law there are judicial decisions being taken by the adjudicator. But there are also checks and accounting as well as conduct of due process that are carried out by the IPs. Insolvency professionals form a crucial pillar upon which rests the effective, timely functioning as well as credibility of the entire edifice of the insolvency and bankruptcy resolution process”

Take the example of a corporate insolvency resolution process (hereinafter, "CIRP") under the Code where an IP is vested with a whole array of statutory and legal duties and powers. He exercises the powers of the board of directors of a company under CIRP, has to manage operations of corporate debtor as a going concern, make every endeavour to protect and preserve the value of its property and comply with applicable laws on behalf of the corporate debtor. He takes important business and financial decisions having substantial bearing on such persons and its stakeholders, negotiates deals, settles claims, resolves conflict of interests, conducts meetings of the committee of creditors, invites and examines resolution plans, reports on irregular transactions and discharges other onerous responsibilities. He conducts the entire insolvency resolution process - he is the fulcrum of the process and the link between the Adjudicating Authority and stakeholders - debtor, creditors - financial as well as operational, and resolution applicants. An IP is, in fact, the driving force and the nerve-centre in an insolvency proceeding.

An IP requires a range of skills to efficiently perform his very important role. The process of insolvency is often turbulent and distressing for the company and its stakeholders. The proficiency of the IP can allow troubled business to stay afloat and where this is not possible, enable vulnerable creditors to maximise their returns. His work affects the lives, prospects and livelihood of both creditors and debtors and often involves dealing with many competing interests. He must be able to balance the interests of all stakeholders, and such stakeholders should have confidence in the insolvency regime and its practitioners. Besides legal obligations, an IP has ethical and moral obligations to creditors, employees and other stakeholders. Integrity and experience of IPs is central to the functioning of the insolvency system. An IP must possess not only qualities such as resourcefulness and business acumen, but also a good sense of judgment and fairness when balancing the interests of stakeholders inter se or against other interests and statutory objectives. He also needs written and interpersonal skills to deal with creditors, anxious directors, concerned employees and a range of other stakeholders in the business. He must have a fair degree of appreciation of cultures, social and other factors surrounding an insolvency proceeding. The insolvency profession is not just another profession, but an institution onto itself.

Keeping in view these responsibilities, the Code facilitates and empowers an IP to discharge them effectively. It obliges every officer of the company to report, and the promoter of the company to extend, all assistance and cooperation to him. He has the authority to appoint accountants, legal or other professionals and use support services from an insolvency professional entity as may be necessary for discharge of his duties. There is an assurance of supply of essential goods and services to, and a moratorium on proceedings against, the company. He is expected to seek orders from the Adjudicating Authority if he comes across any preferential, undervalued, extortionate, or fraudulent transaction. He has protection for actions taken in good faith. His conduct can be investigated only by the IBBI and Insolvency Professional Agencies (hereinafter, “IPA”), which must follow a due process for the purpose. There is bar on trial of offences against an IP except on a complaint filed by the IBBI. The appointment or removal of an IP requires approval of the Adjudicating Authority.

Theraison d’etre of the Centre of Insolvency and Banking Centre in the IICA is to meet the capacity building needs of the four pillars of the IBC and do action research to support the Ministry of the Corporate Affairs, IBBI and other stakeholders in the insolvency and bankruptcy eco-system.

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