Age Restrictions on Insolvency Professionals

The Board has introduced the concept of “Authorisation for Assignment” by inserting Clause  No.12A (2) in the Schedule of "Insolvency and Bankruptcy Board of India (Model Bye-Laws and Governing Board of Insolvency Professional Agencies) (Amendment) Regulations, 2019", which reads as under:-

• # 12A (2) A professional member shall be eligible to obtain an authorisation for assignment, if he-

(a) is registered with the Board as an insolvency professional;

(b) is a fit and proper person in terms of the Explanation to clause (g) of regulation 4 of the Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016;

(c) is not in employment;

(d) is not debarred by any direction or order of the Agency or the Board;

(e) has not attained the age of seventy years;

(f) has no disciplinary proceeding pending against him before the Agency or the Board;

(g) complies with requirements, as on the date of application, with respect to-

(i) payment of fee to the Agency and the Board;

(ii) filings and disclosures to the Agency and the Board;

(iii) continuous professional education; and

(iv) other requirements, as stipulated under the Code, regulations, circulars, directions or guidelines issued by the Agency and the Board, from time to time.

• (6) An authorisation for assignment issued or renewed by the Agency (Insolvency Professional Agency) shall be valid for a period of one year from the date of its issuance or renewal, as the case may be, or till the date on which the professional member attains the age of seventy years, whichever is earlier.

 

1. With the above amended Regulations, a new concept of “Authorisation for Assignment” has been introduced. Thus an Insolvency Professional must possess “Authorisation for Assignment” before taking up any assignment [ i.e. Interim resolution professional (IRP), resolution professional (RP), liquidator, bankruptcy trustee, authorised representative or in any other role under the Code) under the Code (IBC-2016)].

 

2. Besides existing criteria of eligibility for a person to work as “Insolvency Professional”, a new condition  of  upper age limit has been imposed. Genesis for this new condition,lies in  the discussion paper [ Discussion Paper 12th May, 2019 - Amendments to the Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016.]. Relevant para of the discussion paper  reads as under:-

•  # 13. In terms of section 196 of the Companies Act, 2013, an individual above the age of  70 years is not ordinarily eligible to be a Managing Director, Whole time Director or   Manager, given the demanding responsibilities of such positions. During the corporate  insolvency resolution process (CIRP), an IP (Insolvency Professional) replaces the Board of Directors and manages the affairs of the company as a going concern. The job of an IP is not less demanding than that of a Managing Director under the Companies Act, 2103. The age  limit applicable to a Managing Director may, therefore, apply to IPs.

 

3. Taking support of the Companies Act , the board has not only imposed the age limit for the assignments of IRP / RP in CIRP (Corporate Insolvency Resolution Process), but  extended the age restrictions for taking up the other assignments also , be it liquidator, bankruptcy trustee, authorised representative or in any other role under the Code,  which is grossly unjustified.

 

4. There was no need to put the age limit for taking up of  assignments  in the regulations, as an Insolvency Professional (IP) can not function as IRP / RP  in CIRP beyond the age of 70 years as per the provisions of The Companies Act

• # 196 (3) No company shall appoint or continue the employment of any person as managing director, whole-time director or manager who—

(a) is below the age of twenty-one years or has attained the age of seventy years:

Provided that appointment of a person who has attained the age of seventy years may be made by passing a special resolution in which case the explanatory statement  annexed to the notice for such motion shall indicate the justification for appointing such  person;

 

During the course of CIRP (Corporate Insolvency Resolution Process), Insolvency Professional  is appointed as IRP /RP to manage the company as a going concern & is vested with the powers of the Board of Directors, including that of Managing Director, of the concerned  company.

 

5. As per the provisions of the code [Section 17(2)(e) of Corporate Insolvency Resolution Process, under Chapter II of PART II of the code], it is the responsibility of  IRP / RP  to comply with all concerned laws . 

• # Section 17(2)(e) be responsible for complying with the requirements under any law for  the time being in force on behalf of the corporate debtor.

 

6. Now look  to another section of The Companies Act , with reference to the practice of  handling  multiple assignments of IRP / RP by some insolvency professionals in the industry.

• # 203 (3) A whole-time key managerial personnel shall not hold office in more than one company except in its subsidiary company at the same time:

Provided that nothing contained in this sub-section shall disentitle a key managerial  personnel from being a director of any company with the permission of the Board:

Provided further that whole-time key managerial personnel holding office in more than  one company at the same time on the date of commencement of this Act, shall, within a period of six months from such commencement, choose one company, in which he wishes to continue to hold the office of key managerial personnel:

(5) If any company makes any default in complying with the provisions of this section, such company shall be liable to a penalty of five lakh rupees and every director and key managerial personnel of the company who is in default shall be liable to a penalty of fifty thousand rupees and where the default is a continuing one, with a further penalty of one thousand rupees for each day after the first during which such default continues but not exceeding five lakh rupees.

 

7. Thus  an Insolvency Professional  handling multiple CIRP ( Corporate Insolvency Resolution Process) assignments or handling a CIRP beyond the age of 70 years, is open to action under the above provisions of  The Companies Act, which may be initiated by any of the  disgruntled director or shareholder of the company undergoing insolvency.

 

8. As per the amended, Insolvency and Bankruptcy Board of India (Insolvency Professionals) (Amendment) Regulations, 2019, an Insolvency Professional can take up CIRP assignment just few days before attaining the age of 70 years. Will it not be a violation of the Section 196 (3) of The Companies Act ? By permitting the IP’s to take up the CIRP assignment just few days before attaining the age of 70 years, will the  Board not become complicit in the contravention of the provisions of The Companies Act.

• “Authorisation for assignment.”

# 7A. An insolvency professional shall not accept or undertake an assignment after 31st December, 2019 unless he holds a valid authorisation for assignment on the date of such acceptance or commencement of such assignment, as the case may be:

Provided that provisions of this regulation shall not apply to an assignment which an insolvency professional is undertaking as on-

- (a) 31st December, 2019; or

- (b) the date of expiry of his authorisation for assignment.”.

 

9. The best way forward for the Board would have been to issue a circular drawing the attention of the IP’s (Insolvency Professionals) towards provisions of Section 196(3)  of The Companies Act.

 

10. Now let’s look, whether the Board is empowered to frame Regulations, imposing the age limit on IP’s. Following are the provisions of the Code for IP’s.

• # Section 3(19) “insolvency professional” means a person enrolled under section 206 with an insolvency professional agency as its member and registered with the Board as an insolvency professional under section 207; 

• # Section 207. Registration of insolvency professionals. -

(1) Every insolvency professional shall, after obtaining the membership of any insolvency professional agency, register themselves with the Board within such time, in such manner and on payment of such fee, as may be specified by regulations.

(2) The Board may specify the categories of professionals or persons possessing such qualifications and experience in the field of finance, law, management, insolvency or such other field, as it deems fit.

• # Section 240. Power to make regulations. –

(1) The Board may, by notification, make regulations consistent with this Code and the rules made thereunder, to carry out the provisions of this Code.

(2) In particular, and without prejudice to the generality of the foregoing power, such regulations may provide for all or any of the following matters, namely: —

- (zzh) the time within which, the manner in which, and the fee for registration of insolvency professional under sub-section (1) of section 207;

-  (zzi) the categories of professionals or persons, the qualifications and experience and the fields under sub-section (2) of section 207;

 

Thus for the purpose of registration, as per Section 207(2) read with Section 240 (2)(zzi), Board can only specify through Regulations:-

1. The categories of professionals,(i.e. CA, Cost Accountants, Company Secretaries. Advocates etc.)

2. The criteria of qualifications.

3. Experience in the field of finance, law, management, insolvency or such other field, as it deems fit.

 

11. None of the provisions of the Code (Insolvency & Bankruptcy Code - 2016) empowers the Board to impose any criteria other than  specified in the Section 207 (2). Thus the action of the Board in imposing the criteria of age restrictions for Insolvency Professionals,  is quite an outreach of the powers vested with the Board.

 

12. It will not be out of place to mention that Board under clause 2 of the present  amendments in  regulations, amended  Regulation no 5(8) of  Insolvency and Bankruptcy Board of India (Model Bye-Laws and Governing Board of Insolvency Professional Agencies) Regulations, 2016,  and increased the age of Independent Director of Insolvency Professional Agency from seventy years to seventy five years.

• # 2. In the Insolvency and Bankruptcy Board of India (Model Bye-Laws and Governing Board of Insolvency Professional Agencies) Regulations, 2016 (hereinafter referred to as the principal regulations), in regulation 5, in sub-regulation (8), for the words “seventy years”, the words “seventy-five years” shall be substituted.

 

13 There is no age restriction in any other professional field i.e. Advocates, Chartered Accountants, Cost Accountants, Company Secretaries , Doctors etc. The idea behind not imposing any age restrictions on professionals, is that the society may continue to get  the benefits of the talent & experience of the professionals.

 

Conclusion - The action of the Board (Insolvency and Bankruptcy Board of India), putting    age restriction on Insolvency Professionals for taking up any assignment under the Code (IBC-2016) is -

• Putting age restrictions on “Insolvency Professionals” is not desirable.

• Putting  age criteria under the regulations is not within the powers delegated to the Board for framing of regulations under sub-section 240(2)(zzi) read with Section 207 of the Code (IBC-2016).

 

Disclaimer: The sole purpose of this blog is to create awareness on the subject and must not be used as a guide for taking or recommending any action or decision. A reader must do his own research and seek professional advice if he intends to take any action or decision in the matters covered in this blog.

Secured Creditor , IBC Amendment Bill - 2019

Present discussion is limited to recent amendments  in Section 30 of the Code and its implications on the overall resolution processes.

Existing provisions

# Section 30 (2)(b) provides for the 2[payment] of the debts of operational creditors in such manner as may be specified by the Board which shall not be less than the amount to be paid to the operational creditors in the event of a liquidation of the corporate debtor under section 53;

# Section 30(4) The committee of creditors may approve a resolution plan by a vote of not less than 5[sixty-six] per cent. of voting share of the financial creditors, after considering its feasibility and viability, and such other requirements as may be specified by the Board:

Recent amendment

“# Section 30 (2)(b) provides for the payment of debts of operational creditors in such manner as may be specified by the Board which shall not be less than–

         (i) the amount to be paid to such creditors in the event of a liquidation of

the corporate debtor under section 53; or

         (ii) the amount that would have been paid to such creditors, if the

amount to be distributed under the resolution plan had been

distributed in accordance with the order of priority in sub-

section (1) of section 53,

whichever is higher, and provides for the payment of debts of financial creditors, who do not vote in favour of the resolution plan, in such manner as may be specified by the Board, which shall not be less than the amount to be paid to such creditors in accordance with sub-section (1) of section 53 in the event of a liquidation of the corporate debtor.

# Section 30(4) The committee of creditors may approve a resolution plan by a vote of not less than 5[sixty-six] per cent. of voting share of the financial creditors, after considering its feasibility and viability, #[the manner of distribution proposed, which may take into account the order of priority amongst creditors as laid down in sub-section (1) of section 53, including the priority and value of the security interest of a secured creditor] and such other requirements as may be specified by the Board:

# Inserted in the proposed amendment 

Analysis

Let’s look to the amendments to # Section 30 (2)(b). There are two important additions to this sub-section namely

- (ii) the amount that would have been paid to such creditors (Operational Creditor), if the amount to be distributed under the resolution plan had been distributed in accordance with the order of priority in sub-section (1) of section 53,

Prior to the recent amendments, the minimum amount [in terms of  Section 53(1)] which was to be paid to operational creditor was based on the liquidation value only, which has now been changed to either liquidation value or the resolution plan value, whichever is higher.  This amendment is a welcome amendment in favour of operational creditors.

- In the recent amendments , the concept of minimum amount [in terms of  Section 53(1)] to be paid to operational creditor, has been extended to dissenting financial creditor also, which has far reaching consequences. A  financial creditor will be tempted to become a dissenting creditor if his proposed share in the resolution plan is lower than the liquidation value of the underlying asset in his secured credit, increasing the chances of pushing greater number of cases towards liquidation, which is against the objectives of the code for maximization of the asset / enterprise value. In the process of liquidation the enterprise value of the CD is lost forever.

These amendments  has other implications also. As per the Code / Regulations, the valuation report (fair value & liquidation value) is not disclosed to the resolution applicant, as such the distribution of the plan funds will have to be reworked by the CoC, on the basis of the voting pattern of CoC members.

Further the amendment in # Section 30(4) ensures that the distribution  takes into account the order of priority amongst creditors as laid down in sub-section (1) of section 53, including the priority and value of the security interest of a secured creditor, leaving very little  scope for judicial intervention in the matter.

Disclaimer: The sole purpose of this blog is to create awareness on the subject and must not be used as a guide for taking or recommending any action or decision. A reader must do his own research and seek professional advice if he intends to take any action or decision in the matters covered in this blog.

Income Tax assessment proceedings & Moratorium U/s 14 of IBC

NCLT(PB) New Delhi (24.05.2019) in Oriental Bank of Commerce vs. M/s. Allied Strips Ltd. & Ors.[Item No.111 (IB)-46(PB)/2018] set aside the Income Tax Department’s notice to the CD issued during moratorium, as being violative of Sec. 14(1)(a), IBC.

 

The factual matrix of the case, in brief, is that, an application u/s 7, IBC was filed against the CD & AA on 16th March 2018 allowed the application and moratorium U/s 14, IBC was thus imposed. Subsequently, a notice was sent by the Assistant Commissioner of Income Tax (ACIT) to the RP intimating the pendency of assessment proceedings against CD. A reply to the said notice was sent by the RP  informing on the pendency of CIRP proceedings against CD, as also the moratorium imposed on CD by virtue of Sec. 14. The income-tax authorities, however, persisted with their proceedings and  sent show-cause notices to the CD, replies whereof were sent by the RP pleading that such  proceedings and notices are in clear violation of the moratorium. However the Income Tax Authorities went ahead and passed three penalty orders on 30.03.2019.

 

This resulted in RP filing an application before Hon’ble NCLT impugning the validity of IT notices issued to the CD and penalty orders, relying on Hon’ble SC judgments delivered in Pr. Commissioner of Income Tax vs. Monnet Ispat and Energy Ltd. and Alchemist Asset Reconstruction Company Ltd. vs. M/s Hotel  Gaudavan (P) Ltd. concerning application of Sec. 14 and Sec. 238, IBC.

 

The NCLT (Principal Bench), while allowing an application (IB-46(PB)/2018) filed by the RP inter alia seeking stay of proceedings initiated against the CD (under Income Tax Act, 1961), has vide its order dated 24th May, 2019, upheld the settled position of law as regards application  of Sec. 14 (r/w Sec. 238, IBC). The NCLT, thus concluded, that in the facts and circumstances of  the case, issuance of Income Tax notice against the CD during the moratorium clearly contravenes the provisions of  Sec 14(1)(a) as well as law declared by the Hon’ble SC in Hotel  Gaudavan’s case (infra) and Monnet Ispat and Energy (infra). Upholding RP’s contentions, Hon’ble NCLT held as under;

 

Excerpts of the order;

“It is thus patent that no proceedings by any authority could have been continued or initiated after 16.03.2018 when the moratorium comes into effect. However, despite the intimation sent at various stages by the Resolution Professional bringing to the notice of the Assistant Commissioner- non applicant the operation of the moratorium under section 14(1)(a), the Assistant Commissioner continued proceedings which resulted in passing three penalty orders in respect of three separate assessment years under Section 271(1)(c) of the Income Tax Act on 30.03.2019. It is appropriate to mention that when the notices have been issued by the Assistant Commissioner on various dates from 17.10.2018 which as has already been notice in the preceding para. Thereafter , the Resolution Professional has been repeatedly intimating the Assistant Commissioner-non applicant about the moratorium. Despite repeated intimation the aforesaid orders have been passed which is wholly without jurisdiction and competence of the Assistant Commissioner. It clearly contravenes the provisions of Section 14(1)(a) and the law declared by Hon’ble The Supreme Court in Hotel Gaudavan’s case (supra) as well as in the case of Monnet Ispat and Energy (supra).

 

As a sequel to the above discussion the application is allowed. The three adverse orders passed against the corporate debtor on 30.03.2019 are hereby set aside as those orders were proceeded with and finally passed during the Corporate Insolvency Resolution Process period.”

 

Disclaimer: The sole purpose of this blog is to create awareness on the subject and must not be used as a guide for taking or recommending any action or decision. A reader must do his own research and seek professional advice if he intends to take any action or decision in the matters covered in this blog.

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IBBI - IIIPI Compliances

A. Insolvency & Bankruptcy Board of India.

Yearly Return, ... FORM - E (Annual statement of professional fee of insolvency professional.), to be submitted online by login at the site of IBBI [Under Regulation 7 (2)(ca) of the Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016]

Event based.

1. Publication of Public Announcements on the website of IBBI,

Mail to   public.ann@ibbi.gov.in in pdf format, through registered mail ID.( IBBI Circular no. No. IP(CIRP)/006/2018 23rd February, 2018)

a. Form A under regulation 6 (2) (b) (iii) of the IBBI (Insolvency Resolution Process      for Corporate Persons).

b. Form A under regulation 6 (2) (b) (iii) of the IBBI (Fast Track Insolvency Resolution Process for Corporate Persons) Regulations, 2017.

c. Form B of Schedule II under regulation 12 (3) (c) of the IBBI (Liquidation Process) Regulations, 2016.

d. Form A of Schedule I under regulation 14 (3) (c) of the IBBI (Voluntary Liquidation Process) Regulations, 2017.

2. Brief particulars of Invitation of Resolution Plans  by the Resolution Professional
Mail to   invite.rp@ibbi.gov.in  in pdf format through registered mail ID.( IBBI Circular No. IP(CIRP)/006/2018 23rd February, 2018)

a.  Form G under regulation 36A (5) (b) of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016

b. Form G of the Schedule under regulation 35A (5) (b) of the IBBI (Fast Track Insolvency Resolution Process for Corporate Persons) Regulations, 2017.

3. Copy of records of every proceeding  before AA (Adjudicating Authority)

under  section  208(2)(d) of IBC-2016. Mail to   proceedings@ibbi.gov.in  in pdf format through registered mail ID.

a). All the applications filed with AA.

b). All the progress reports submitted to AA.

c). Copies of minutes of CoC submitted to AA.

d). Details of preferential transactions etc. submitted to AA.

e). Copy of resolution plan submitted to AA.

B. Indian Institute of Insolvency Professional of ICAI

Half - Yearly return  A professional member shall submit information, including records of ongoing and concluded engagements as an insolvency professional, in the manner and format specified by the Agency, at least twice a year.

Event based.

1. Public announcements  As above are to be submitted on the website of IIIPI
( Mobile no +918178995136)

2. Disclosure of relationship
Disclosure of relationship of IP & professional appointed by him.(IP). as per IBBI Circular no. IP/005/2018 dated 16.01.2018.

- Disclosures to be given by 
a). IP
b). Professional appointed by IP

- Disclosures are to be submitted by IP to IPA within 3 days of appointments.
a). IP to confirm to IPA that appointments have been made in Arm’s length basis.
b). IP to disclose his relationship to IPA,  with the following-
- The Corporate Debtor.
- Other professional engaged by him.
- Financial Creditors.
- Interim Finance Provider.
- Prospective Resolution Applicant..   

- Other Professional appointed by IP to disclose relationship with the following related
parties.
- IP who has appointed him.
- The Corporate Debtor.
- Other Professional engaged by IP.
- Financial Creditors.
- Interim Finance Provider
- Prospective Resolution Applicant.

Relationship’ shall mean any one or more of the four kinds of relationships at any time or during the three years preceding the appointment:

Kind of Relationship	Nature of Relationship
A	Where the Insolvency Professional or the Other Professional, as the case may be, has derived 5% or more of his / its gross revenue in a year from professional services to the related party.
B	Where the Insolvency Professional or the Other Professional, as the case may be, is a Shareholder, Director, Key Managerial Personnel or Partner of the related party
C	Where a relative (Spouse, Parents, Parents of Spouse, Sibling of Self and Spouse, and Children) of the Insolvency Professional or the Other Professional, as the case may be, has a relationship of kind A or B with the related party.
D	Where the Insolvency Professional or the Other Professional, as the case may be, is a partner or director of a company, firm or LLP, such as, an Insolvency Professional Entity or Registered Valuer, the relationship of kind A, B or C of every partner or director of such company, firm or LLP with the related party.

3.  Disclosure of Fee & Expences  As per IBBI Circular no. IBBI/IP/013/2018 dated 12.06.2018.

a). Form I : Details of Corporate Debtor Undergoing Insolvency Resolution Process

b). Form II : Insolvency Resolution Process Cost of Corporate Debtor for the period under IRP (Form l & ll are to  be submitted by IRP within 7 days of demitting of the office as IRP.)

c). Form III: Insolvency Resolution Process Cost of Corporate Debtor for the period under RP. (Form lll is  to be submitted by RP within 7 days of demitting of the office as RP.)

An Insolvency Professional Agency (IPA) shall facilitate receipt of disclosures as required above. It shall disseminate such disclosures on its web site within three working days of receipt of the disclosure.

    

4. Copy of records of every proceeding  before AA (Adjudicating Authority) under section 208(2)(d) of IBC-2016.

Mail to   ip_monitoring@icai.in or iiipi_monitoring@icai.in  in pdf format through registered mail ID.( mobile nos.of the concerned department of  IIIPI - 8178995137, 8178995138)

'Disclaimer: The sole purpose of this blog is to  create awareness on the subject and must not be used as a guide for taking or recommending any action or decision. A reader must do his own research and seek professional advice if he intends to take any action or decision in the matters covered in this blog