Akshita Sodhi
Introduction
The insolvency and bankruptcy code is the new code introduced in the year 2016 to solve insolvency/bankruptcy of corporate or individuals in a time bound manner. Moreover this code has somehow proved to be helpful for the creditors to get their debt back from debtors.
But to understand this code, one needs to read this code along with company law as there is sometimes overlapping of provisions and to understand the provisions as well, one needs to understand first the company law. This code is needed indeed for the growth of our economy.
The time period provided to complete the insolvency proceedings is 180+90 days (90days extension period can be given on discretion of court), however by the amendment in the code in November 2019 the time period for completing insolvency proceedings is increased to 330 days.
Resolution professional is known as liquidator in the liquidation stage of the corporate debtor under insolvency and bankruptcy code, 2016.
Resolution professionals or the liquidator plays a huge role in the liquidation process. It’s on his application or on the application of resolution professional to the adjudicating authority the debtor can go into liquidation and all the assets of the corporate debtor are being sell out.
To understand the role of liquidator or liquidation professional in liquidation process, it is crucial to understand few terms first as listed below:
Insolvency
Insolvency is a state wherein the debtor becomes insolvent, i.e., he becomes unable to pay his debts to the creditor. Under IBC Code, 2016, Corporate Insolvency and bankruptcy proceedings can be initiated by the creditor. against a debtor on the minimum amount of default of Rs 1 crore, the earlier threshold of default was 1 lakh but the GOI has recently amended it in 2020 pertaining to the COVID-19 situation.
Bankruptcy
The term insolvency and bankruptcy are often used interchangeably, Insolvency is when a corporate becomes insolvent and when an individual becomes insolvent, he/she is called bankrupt.
Liquidation
It is the last stage of I&B Code 2016 and must be a last resort as well, if there is no resolution plan submitted to the tribunal or the resolution plan submitted is not up to the mark, then the individual or corporate go into liquidation where the assets of the corporate are being sold to repay the debts. At this stage all the assets of the corporation are being sold to repay his debt.
Creditor
Creditor is the one who credits or gives money/goods to the debtor.
Debtor
Debtor is the person who owes the debt from the creditor.
Financial Creditor (Defined in Section 5(7) of the Act)
In simple words, Financial creditor means a creditor who gives debt to the debtor in terms of money only. Example- Loan given by bank, the person who gives loan on interest etc. By the definition of section 5 Financial creditor means a person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred.
Resolution professional
Resolution Professional means an resolution professional appointed to conduct the corporate insolvency resolution process and includes an interim-resolution professional[i].
For becoming a Resolution Professional, one has to clear Limited Insolvency exam conducted by IBBI and must have 10 years of prior experience as a CA, CS or as an advocate or must have a 15 years of post experience in management after obtaining law degree from a recognised university.
Liquidator
Liquidator is also popularly known as liquidation professional. ‘Liquidator’ means a resolution professional appointed as a liquidator in accordance with the provisions of Insolvency and Bankruptcy Code 2016[ii]. In common language the official liquidator appointed by the court for the liquidation process of the corporate debtor is called Liquidator or liquidation professional.
The role of Liquidator start when a liquidation order is being passed by the court.
Resolution professional known as liquidator in liquidation stage
When there is no application submitted in the court for the resolution plan of the corporate debtor or the application submitted is not up to the mark, then the adjudicating authority passes the liquidation orders for the corporate debtor. The resolution professional submitted the application to the court to pass such orders. When the corporate debtor goes into liquidation, the appointed resolution professional becomes the liquidator for the liquidation process of the debtor.
How Liquidator is being Appointed?
When the liquidation order is being passed by the court, either the resolution professional who was appointed by the court for the corporate insolvency process continues to be the liquidator as well or the court can appoint a new liquidator and replace the existing resolution professional as per some conditions specified in the act.
Vesting of powers in the hand of liquidator
On the appointment of a liquidator under this section, all powers of the board of directors, key managerial personnel and the partners of the corporate debtor, as the case may be, shall cease to have effect and shall be vested in the liquidator[iii].
Powers and Duties of Liquidator
There are various powers and duties vested in the hand of liquidator by the adjudicating authority, out of which some of them are listed below:
(a) to verify claims of all the creditors;
(b) to take into his custody or control all the assets, property, effects and actionable claims of the corporate debtor;
(c) to evaluate the assets and property of the corporate debtor in the manner as may be specified by the Board and prepare a report;
(d) to take such measures to protect and preserve the assets and properties of the corporate debtor as he considers necessary;
(e) to carry on the business of the corporate debtor for its beneficial liquidation as he considers necessary;
(f) subject to section 52, to sell the immovable and movable property and actionable claims of the corporate debtor in liquidation by public auction or private contract, with power to transfer such property to any person or body corporate, or to sell the same in parcels in such manner as may be specified. Provided that the liquidator shall not sell the immovable and movable property or actionable claims of the corporate debtor in liquidation to any person who is not eligible to be a resolution applicant.
(g) to draw, accept, make and endorse any negotiable instruments including bill of exchange, hundi or promissory note in the name and on behalf of the corporate debtor, with the same effect with respect to the liability as if such instruments were drawn, accepted, made or endorsed by or on behalf of the corporate debtor in the ordinary course of its business;
(h) to take out, in his official name, letter of administration to any deceased contributory and to do in his official name any other act necessary for obtaining payment of any money due and payable from a contributory or his estate which cannot be ordinarily done in the name of the corporate debtor, and in all such cases, the money due and payable shall, for the purpose of enabling the liquidator to take out the letter of administration or recover the money, be deemed to be due to the liquidator himself;
(i) to obtain any professional assistance from any person or appoint any professional, in discharge of his duties, obligations and responsibilities;
(j) to invite and settle claims of creditors and claimants and distribute proceeds in accordance with the provisions of this Code;
(k) to institute or defend any suit, prosecution or other legal proceedings, civil or criminal, in the name of on behalf of the corporate debtor;
(l) to investigate the financial affairs of the corporate debtor to determine undervalued or preferential transactions;
(m) to take all such actions, steps, or to sign, execute and verify any paper, deed, receipt document, application, petition, affidavit, bond or instrument and for such purpose to use the common seal, if any, as may be necessary for liquidation, distribution of assets and in discharge of his duties and obligations and functions as liquidator;
(n) to apply to the Adjudicating Authority for such orders or directions as may be necessary for the liquidation of the corporate debtor and to report the progress of the liquidation process in a manner as may be specified by the Board; and
(o) to perform such other functions as may be specified by the Board.
2.Power to consult any of the stakeholders entitled to a distribution of proceeds as per provisions provided in the act, such consultation shall not be binding on the liquidator[iv].
Insolvency Resolution professional and Liquidator to get his pay first in the priority list after liquidation
When the liquidation order has been passed by the court and the assets are finally liquidated, the liquidator and resolution professional shall be the first among all the other persons to get his costs paid full. After the liquidator workman’s dues, wages dues and secured debt etc is being aid at the equal priority number[v].
Role of liquidator for the benefit of creditor
The liquidator shall kept the liquidation estate as fiduciary for the benefit of the creditors. It also has powers to call for any information related to liquidation estate from the corporate debtor, from the database of board, from an agency registered with central, state Government, and from various other sources as well.
Claims to be consolidated by the liquidator
The claims are being consolidated by the liquidator, he shall call for the claims shall receive or collect the claims of creditors within a period of thirty days from the date of the commencement of the liquidation process[vi].
The liquidator shall verify the claims submitted to it and it can also call for the evidence from the person submitting it for the verification of claim[vii].
It’s up to the liquidator to accept the claim or reject the claim submitted to him, he shall be required to inform about the decision of admission or rejection within seven days of such admission or rejection[viii].
Application by Liquidator for dissolution of corporate debtor
Where the assets of the corporate debtor have been completely liquidated, the liquidator shall make an application to the Adjudicating Authority for the dissolution of such corporate debtor. The Adjudicating Authority shall on application filed by the liquidator order that the corporate debtor shall be dissolved from the date of that order and the corporate debtor shall be dissolved accordingly.
Conclusion
The Court through various judgments and orders has made this point very much clear that death of the corporate is not the purpose of legislation behind the enactment of this act. The sole purpose of this act is to provide resolution for the debt in a time bound manner and to avoid the debtor itself from handling his own business, but instead resolution professional or liquidation professional acting on his behalf and handling the business of the corporate debtor. The liquidator should always work in accordance with provisions provided in section 35 of the Act as he has a very big duty over his shoulders to handle the business of a debtor and to act in the interest of both the creditor as well as for the debtor as well.
Endnotes:
[i] Section 5(27) of IBC 2016
[ii] Section 5(18) of IBC 2016.
[iii] Section 34(2) of IBC 2016
[iv] Section 35 of IBC 2016.
[v] Section 52 of IBC 2016
[vi] Section 38 of IBC 2016
[vii] Section 39 of IBC 2016
[viii] Section 40 of IBC 2016
