India: A Comparison Between The Powers Of The Resolution Professional Vis-à-vis Those Of The Liquidator Under The Insolvency And Bankruptcy Code, 2016

Under section 433(e) of the Companies Act, 1956 and under Section 271(1)(a) of the unamended Companies Act, 2013 a company could be wound up if it was "unable to pay its debts". The effect of an order for winding up under both these acts would result in liquidation of the company. With the enactment of the Insolvency and Bankruptcy Code, 2016 (hereafter, "IBC") and through the action of section 255, inability to pay debts has been removed as a ground for winding up under section 271(1)(a). Now, under the IBC, the course of law now mandates that if a Corporate Debtor1 (including a company) is not able to pay its debts then an effort must be made to revive it through the Corporate Insolvency Resolution Process(hereafter, "CIRP") and, if that fails, the company must be liquidated under the provisions of the IBC.

Under the Code, Chapter II of Part II in sections 6 to 32 deals with CIRP whereas, sections 33 through 54 in Chapter III of Part II deals with the Liquidation Process. For the purpose of the CIRP, under the IBC, an Interim Resolution Professional (hereafter, "IRP") is appointed, who can then be confirmed as the Resolution Professional (hereafter, "RP") or a different RP can be selected in his place. The IRP/RP's main role is to aid in the revival of the company and in this regard, he has been given wide and varied powers and duties under the Code. The primary tasks of the IRP include assuming control and running the affairs and management and assets of the corporate debtor as a going concern, collecting information on the finances of the Corporate Debtor, collecting and collating claims and constituting the committed of creditors. The committee of creditors then appoints a resolution professional. The resolution professional then takes over the CIRP. The RP has the same power and the duties to conduct the CIRP as the IRP.2 In addition, the RP has the important duty of preparing the information memorandum under section 29 of the Code, receiving the resolution plan and checking whether the plan conforms to the requirements under section 30(2), presenting resolution plans at the meeting of the committee of creditors and submitting the resolution plan accepted by the committee of creditors to the Adjudicating Authority for approval.

In cases where no resolution plan is submitted to the Adjudicating Authority, or the resolution plan is rejected, or when the committee of creditors decide to go into liquidation3 or the resolution plan is contravened, then the Adjudicating Authority may pass an order for liquidation. This liquidation order therefore marks the end of the Corporate Insolvency Resolution Process and the beginning of the Liquidation Process. Under the Act, the resolution professional appointed for the CIRP takes over as liquidator4 unless replaced by the Adjudicating Authority. Subsequently, the powers of the board would vest in the liquidator and management of the corporate debtor would move into the hands of the liquidator to enable him to carry out the liquidation process. In order for the liquidator to carry out its job, he has been given powers under section 35 of the IBC. These powers are similar to the ones given to the IRP under the provisions dealing with CIRP, with the only difference being the end result in this process is liquidation of the company. Further, under the code, both the resolution professional and the liquidator have powers to apply for the avoidance of preferential transactions5, undervalued transactions6 and extortionate credit transaction7.

For the purpose of liquidation however, the liquidator has some special powers that are different from those of the resolution professional. Under section 36 the liquidator forms a liquidation estate where liquidator holds all the properties of corporate debtor as a fiduciary, for the benefit of the creditors. Another major function of the liquidator is the consolidation and verification of the claims submitted to him, determination of their value. While the resolution professional also has the power to call for and collate the claims, there are a few differences in procedure collation of claims in CIRP and the liquidation. In the liquidation process, the liquidator has the power to reject claims raised8 and if a claim is rejected, a creditor can appeal against this decision to the Adjudicating Authority.9 Additionally, claims once made can be withdrawn.10 The liquidation assets are then sold and the proceeds are distributed according to the order of priority given under section 53. Following this, the liquidator makes an application to the Adjudicating Authority for dissolution of the Corporate Debtor.

Thus we see that there are a number of similarities as well as differences between the roles of the resolution professional and that of the liquidator. It is pertinent to keep in mind however, that there is no overlap between the two. The resolution professional works towards reviving and restructuring the corporate debtor, after a failure of the same, the liquidator sells the liquidation assets, distributes the proceeds and makes an application for dissolution of the company.

Footnotes

1 Insolvency and Bankruptcy Code 2016, s 3(8): "corporate debtor" means a corporate person who owes a debt to any person; s. 3(7): (7) "corporate person" means a company as defined in clause (20) of section 2 of the Companies Act, 2013, a limited liability partnership, as defined in clause (n) of sub-section (1) of section 2 of the Limited Liability Partnership Act, 2008, or any other person incorporated with limited liability under any law for the time being in force but shall not include any financial service provider;

2 Ibid, s 23(2)

3 Ibid, s 33(2)

4 Ibid, s 34

5 Ibid, s 43

6 Ibid, s 45

7 Ibid, s 50

8 Ibid, s 40

9 Ibid, s 54

10 Ibid, s 38

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