India: Insolvency Process – A Collaborative Power Play?

Last Updated: 17 July 2017
Practice Guide by Dhir & Dhir Associates

While India Inc. has been bestowed with one of the much required and appreciated rules via the IBC 2016 code, there have been several questions that the industry has come up with. Amidst many others lies a very crucial element of how IPs and IPEs seem to collaborate to deliver best in class advisory to their clients at large. The article brings into focus all the permutation behind this collaborative approach.

The Insolvency Process involves several critical mandates and responsibilities that could require a larger bandwidth of expertise and execution support in order to successfully meet the objectives therein. This is essentially why certain IP regulations (Regulation 12) clarified that IPs could certainly collaborate with certified Insolvency Professional Entities (IPEs) in order the deliver the best possible set of expertise advise and services in a particular matter. Until now the IBBI has certified about 15 of such IPEs via Certificates of Recognition.

It is extremely difficult for IPs as individuals to meet the requirements and adhere to the guidelines laid down by the code. It not only requires a battery of professionals as experts in the same space but also a quick turnaround in terms of effectively completing all the requirements within the stipulated time frame. The very geographic expanse of the country and an obvious spread out of any multinational or an Indian entity of that shape and size would have office locations all throughout the nation and thereby comes in the need of an IP/IPE to have necessary presence as well in the form of head offices, regional offices etc.

A very representative list of responsibilities that are involved would be managing the business mandates, interact and lead the processes therein, tackle legal and compliance issues, including proceedings in NCLT, prepare periodic reports for National Company Law Tribunal (NCLT) & committee of Creditors (CoC), identify prospective resolution applicants, provision of data rooms, monitor due diligence processes, evaluate Resolution Proposals, meet Creditors on CoC and try to evolve consensus on proposals etc. And here is exactly where IPs and IPEs have collaborated together to spearhead the mammoth initiative of creating a debt free India Inc. in terms of bankruptcy etc.

If one looks into detail the very spirit of the process, it is in a way a takeover of the company being advised and a handholding until the process is complete. Needless to say there remains a legal intellect in peruse, however, unlike many other legal proceedings, this requires furthermore expertise in terms of financial prudence, operational excellence, marketing bizminds and more. In a way, it is re-managing the company with fresh look over and approach.

The code is very stringent in terms of timelines and the included submissions, formalities etc. While, the timelines may be as scary as they can be, there is an inevitable need to adhere to the same. This again would need a multi-lateral support all through the process which of course an individual as a capacity would not suffice. For instance, the IRP has to within 14 days of his appointment collate and verify the claims within 7 days of the last date of receipt of the claims.

The claims from Financial Creditors and more importantly Operational Creditors may run into hundreds or even thousands of claims and the sheer volume requires plural layers of skill set at work to carefully address all the facets involved. These capabilities within an IPE provides a huge cushioning and comfortable access to IPs in order to focus on the main processes and leave the rest to professionals available with the IPE. An IP otherwise would hardly have any time in hand to appoint and build such a bandwidth post his/her appointment on a matter.

An IPE brings into the process several strengths in terms of being a well-established financial know how desk, legal services and any other allied service requirements. They possess a well-structured mechanism in terms of members appointed as IPs and put their existing teams to work alongside the IPs to execute mandates as IRP/RP. While an IRP/RP is entitled to appoint external advisors, sector specialist advisors would indeed be required. However, the role is to extend support to the pre-existing team and definitely not substitute the existing talent at work.

There are several factors on which an IRP/IP may be asked to commence or continue working on a particular mandate. An IPE in play adds in confidence in terms of expertise, diversified solution sets etc. For instance, in the current scenario, while the Financial Creditor (FC) and Corporate Debtor (CD) applicants give consents of proposed IPs along with their CIRP applications, the Operational Creditor (OC) applicants may or may not propose an IP. Of course there remain inclusions like discussions in the first COC meeting and thereafter a vote to continue or replace an IRP with 75 % affirmative, after which the IBBI may have to recommend the name of an IP to act as an IRP or RP.

Similarly, an FC in sec 7 application has to propose an IP to act as IRP. The IBBI and the FCs being PSU banks and FIs, are currently following the process of inviting bids from some select IPs and deciding to appoint IPs with lowest fee submissions. This has inadvertently resulted in price wars thereby ousting the more serious players/IPEs and institutionalized players. However, realizing the importance of the infrastructure and multi layered expertise, some banks have come up with empanelment processes where experience, infrastructure availability is kept as criteria for empanelment. However, this still needs to be thought over seriously by the industry overall and the regulatory bodies as well as it would otherwise might lead to dilution of the very objective of bringing the code into effect. A transparent mechanism should be evolved giving due weightage for the stature, capability and experience of the IP, size and quality of team and infrastructure to conduct the assignment as an IP.

While the objectives of the IBC are salutary, and there is a dire need for a strategic collaboration between IPs and IPEs to improve the Insolvency & Bankruptcy regime in the country. Perhaps, there is need to have differential timeline and modified regulatory frameworks for different size and class of companies to ensure that this path breaking legislation is beneficial to the country.

This article is for information purpose only. It is not intended to constitute, and should not be taken as legal advice, or a communication intended to solicit or establish commercial motives with any. The firm shall not have any obligations or liabilities towards any acts or omission of any reader(s) consequent to any information contained herein. The readers are advised to consult competent professionals in their own judgment before acting on the basis of any information provided hereby.

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