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Insolvency Resolution Professional: New-Age Liquidators Or A Bit More?
The qualifications required to undertake the duties and obligations of the IRP, perhaps require review by the legislature.
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The Insolvency Resolution Professional ("IRP") is an integral part of the Insolvency and Bankruptcy Code, 2016 ("IBC"); a laudable and long overdue Legislation. Even though similar concepts like liquidators, Operative Agencies and interim administrators have existed for long time under Indian Law, the establishment of the Corporate Insolvency Resolution process ("CIRP") and the IRP's is a unique legislative move.
CIRP AND IRP: IMPLEMENTATION ISSUES
Like any new legislation or policy, IBC also has various issues and ambiguities which needs to be addressed, criticism is often easy and convenient. But the real task lies in identifying the problems and ambiguities and attempting to rectify them, so that the legislation can attain its stated objectives. One issue which perhaps needs to be reviewed is the provisions with respect to CIRP and IRP. The objectives of IBC is to maximize the value of the assets of the company, timely resolution of insolvency process, balance the interests of stakeholders, etc.
For achieving the stated purpose the IRP's, play a very crucial role. In short, CIRP has to be undertaken by the IRP's within 180+90=270 days of their appointment during which they have to take care of various tasks including but not limited to:
" Management of the day-to-day affairs of the company;
" Supervising the managers and officers of the Company;
" Managing the company as a going concern;
" Raising Interim Finances;
" Entering into Contracts;
Evidently the IRP's have a relatively wider scope of operation when compared to an Official Liquidator ("OL") under Company Law, as the IRP essentially takes over the management of the insolvent company and attempts to restructure its debts with a purpose to revive it if possible.
This is quite similar to the duties undertaken by the Operative Agencies ('OA') under the SICA who were state level agencies, banks or public financial institutions appointed by the Board.
It seems that the qualifications of IRP have been imported from the qualification of Liquidators under the Companies Act, who used to deal with the Winding Up of Insolvent Companies. There seems to be some oversight as the roles and responsibilities of the Liquidator and the IRP are inherently different.
LIQUIDATORS V. IRPS
Liquidators are essentially custodians of the assets of a company under liquidation whose objective is to sell the assets, in order to realise the outstanding debt of the company and pay the creditors.
The IRP's have a complex role. While his main duty is towards the creditors, he also has to operate the company as a 'going concern' and continue its business, so that a prospective buyer comes up, discharges or restructures the liabilities and continues to run the Company as a going concern, to ensure:
a. Continuation of business of the Company
b. Continuation of the employees and workmen
For the above purpose appointing a lawyer, company secretary, chartered accountant or cost accountant with 10 Years' experience in their fields doesn't seem to be sufficient. The IRP is replacing a group of professionals in the senior-most management who had substantial experience of management behind them. Therefore, lack of any management experience, especially in running a Company or looking after certain aspects of its day-to-day operations, would not be sufficient to fulfil the stated role and objective of the IRP.
It is true that these professionals are highly accomplished in their respective fields. But the question is; can they in the absence of any previous management experience, take management decisions on behalf of the company like running the day-to-day management, supervising the managers and officers, entering into contracts, raising of interim finances, inviting prospective lenders or managing day-to-day finances?
One may argue that the IRP is allowed under the IBC to appoint any professionals, including management professionals to assist them in the CIRP, but the fact remains that the final call is still to be taken by the IRP which would make his role similar to that of a CEO or MD or Chairman of a Company.
For the purpose of achieving the object of the Code there are certain suggestions that could be considered in relation for appointment of IRPs, to ensure that the stated objectives of the Code is achieved:
" Appointing an institution rather than an individual as IRP. Such institution may comprise of professionals from various fields of expertise working together like law, finance, business management, asset management, asset reconstruction, investment banking, sales, marketing, etc. This would ensure smooth functioning of the CIRP and continuation of the company as a going concern.
" Diversifying the roles and responsibilities among various experts within their specialised fields in order to increase effective management.
" Inclusion of a person with Senior Management level experience to safeguard the future of the company.
" Inclusion of a person with experience in the field of business conducted by the Corporate Debtor to ensure smooth day-to-day functions and continuation of the company as a going concern.
Though the spirit of IBC with respect to the provision relating to IRP's shows a progressive train of thought. However, the qualifications required to undertake the duties and obligations of the IRP, perhaps require review by the legislature.
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.