Eligibility , Appointment and Duties of Resolution Professional under the Insolvency and Bankruptcy Code (IBC)

Eligibility , Appointment and Duties of Resolution Professional under the Insolvency and Bankruptcy Code (IBC)

Eligibility of a Resolution Professional
The Insolvency and Bankruptcy Code (IBC), 2016, along with the Insolvency and Bankruptcy Board of India (IBBI) Regulations, 2016, lays down the eligibility criteria for a resolution professional (RP). The role of the RP is crucial in managing the corporate insolvency resolution process (CIRP) and protecting the interests of all stakeholders.

According to Regulation 3 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, the following eligibility criteria apply:

1. Independence from the Corporate Debtor
A person to be appointed as a resolution professional must be independent of the corporate debtor. The regulation highlights several conditions to ensure this independence.

Eligibility as an Independent Director: The resolution professional must be eligible to be appointed as an independent director under Section 149 of the Companies Act, 2013, where the corporate debtor is a company. This section outlines the qualifications for independent directors to ensure they are not related or connected to the company in ways that would compromise their impartiality.

Not a Related Party: The resolution professional or any partner or director of the insolvency professional entity (IPE) they are associated with must not be a related party of the corporate debtor. Being a related party would create a conflict of interest in conducting the resolution process in an unbiased manner.

No Employment or Business Connections:
a)The resolution professional cannot be an employee or partner of a firm of auditors, secretarial auditors, or cost auditors of the corporate debtor.
b)The resolution professional also cannot be associated with a legal or consulting firm that has transactions with the corporate debtor exceeding 5% or more of the gross turnover of the firm in the last three financial years.
These restrictions ensure that the resolution professional is completely independent of the corporate debtor and can carry out the CIRP without any influence or bias.

2. Written Consent
When the committee of creditors (CoC) selects a resolution professional, the professional must give their written consent in a specified format, as provided under Form AA of the Schedule I of the regulations. This ensures the RP is fully aware of their appointment and agrees to take on the responsibility of overseeing the resolution process.

3. Ongoing Disclosure Requirements
During the insolvency resolution process, the resolution professional is required to make continuous disclosures regarding their association with the corporate debtor and
other parties involved. This includes any relationship that might affect their independence or impartiality.

Appointment of a Resolution Professional
The appointment of a resolution professional under the IBC follows a clearly defined process to ensure transparency and accountability. The process is primarily governed
by Section 22 of the Insolvency and Bankruptcy Code, 2016.

1. Appointment of an Interim Resolution Professional (IRP)
When a corporate debtor is admitted into insolvency proceedings, the adjudicating authority (NCLT) appoints an Interim Resolution Professional (IRP) for a period of 30 days to take charge of the corporate debtor and oversee the insolvency resolution process during this interim period.

2. First Meeting of the Committee of Creditors (CoC)
Within seven days of the constitution of the Committee of Creditors (CoC), the creditors must hold their first meeting to decide whether the IRP should continue as the Resolution Professional (RP) for the rest of the CIRP or if they should appoint a new RP. The CoC makes this decision by a majority vote of at least 66% of the voting share of
the financial creditors. This voting threshold was reduced from 75% to 66% by the Insolvency and Bankruptcy Code (Second Amendment) Act, 2018.

3. Communication of the Decision
After the CoC makes its decision, the following steps occur:
Continuing the IRP as RP: If the CoC resolves to continue with the IRP as the RP, the decision is communicated to the IRP, the corporate debtor, and the Adjudicating Authority (NCLT). Importantly, the IRP must provide written consent to continue as the RP in a specified format.

Replacing the IRP: If the CoC decides to replace the IRP, they must file an application before the Adjudicating Authority for appointing the proposed resolution professional. Along with the application, the CoC must submit written consent from the proposed RP to indicate their agreement to be appointed. This consent is a safeguard to ensure the RP understands their role and responsibility in the process.

4. Confirmation of Appointment
Once the CoC has either decided to continue the IRP or replace them with a new RP, the Adjudicating Authority (NCLT) will forward the name of the proposed RP to the Insolvency and Bankruptcy Board of India (IBBI) for confirmation. If the IBBI confirms the name, the appointment is finalized, and the resolution professional takes over management of the corporate debtor and the insolvency resolution process.

5. Role of the Adjudicating Authority (NCLT)
If the IBBI does not confirm the name of the proposed RP within 10 days, the Adjudicating Authority may direct the IRP to continue functioning as the RP until the appointment of a new RP is confirmed. This provision ensures there is no gap in the management of the corporate debtor, which could disrupt the insolvency process.

Conclusion
The eligibility and appointment of a resolution professional are critical to the success of the insolvency resolution process. The Insolvency and Bankruptcy Code, along with the IBBI regulations, sets strict standards for independence, impartiality, and transparency. The appointment process, which includes a vote by the CoC and confirmation by the Adjudicating Authority, ensures that the most suitable and qualified professionals are chosen to manage the affairs of the corporate debtor and facilitate a successful resolution process.

Duties of Resolution professional
Duties of a Resolution Professional under the Insolvency and Bankruptcy Code (IBC), particularly under Section 25.

1. Primary Responsibility (Section 25[1])
The Resolution Professional (RP) has the duty to preserve and protect the assets of the corporate debtor. This includes ensuring the continuity of the corporate debtor's
business operations.

2. Specific Duties (Section 25[2])
To fulfill the primary responsibility of protecting and preserving the corporate debtor's assets, the RP must undertake the following actions:

(a) Custody and Control of Assets:
The RP must immediately take custody and control of all assets of the corporate debtor, including the business records.

(b) Representation in Legal Proceedings:
The RP must act on behalf of the corporate debtor in dealing with third parties and exercise rights for the debtor’s benefit in judicial, quasi-judicial, or arbitration proceedings.

(c) Raising Interim Finance:
The RP can raise interim finances for the debtor, but this requires approval from the committee of creditors (CoC) under Section 28.

(d) Appoint Professionals:
The RP can appoint accountants, legal, or other professionals to assist with the resolution process as specified by the Insolvency and Bankruptcy Board of India (IBBI).

(e) Maintain an Updated List of Claims:
The RP is required to maintain an updated list of claims against the debtor, ensuring accuracy and transparency.

(f) Convene and Attend CoC Meetings:
The RP must convene and attend all meetings of the committee of creditors.

(g) Preparation of Information Memorandum: The RP must prepare an information memorandum in accordance with Section 29. This document is crucial for prospective resolution applicants to understand the financial position of the corporate debtor.

(h) Inviting Prospective Resolution Applicants:
The RP must invite prospective resolution applicants who meet the criteria approved by the CoC. The RP must also take into account the complexity and scale of the debtor's business when inviting applicants.

(i) Presentation of Resolution Plans:
The RP is responsible for presenting all resolution plans to the CoC. These plans are submitted by potential resolution applicants for approval.

(j) Avoidance of Transactions:
The RP must file an application for avoidance of certain transactions as per Chapter III, which could involve fraudulent or preferential transactions.

(k) Other Actions:
The RP is empowered to take other actions as specified by the Board (IBBI) in accordance with the resolution process.

3. Additional Empowerment
The RP also has the authority to raise interim finance (secured or unsecured), but this too requires prior approval from the CoC. The interim finance raised will be considered part of the “insolvency resolution process costs.” Section 25 Amendment by the Insolvency and Bankruptcy Code (Amendment) Act, 2018 Clause (h) of Section 25 was amended to specify that the RP must invite prospective lenders, investors, and other interested parties to put forward resolution plans.

Conclusion
The duties of the RP as defined under Section 25 are aimed at ensuring the efficient management and protection of the corporate debtor’s assets during the insolvency resolution process. The RP plays a critical role in preserving the debtor’s business value and maximizing creditor recovery by inviting suitable resolution applicants, maintaining transparency, and following the legal framework.