Auth. Representative & CoC

Let’s look into the various provisions of the Code, which are as follows -

# 21(6) Where the terms of the financial debt extended as part of a consortium arrangement or syndicated facility 2[***] provide for a single trustee or agent to act for all financial creditors, each financial creditor may-

(a) authorise the trustee or agent to act on his behalf in the committee of creditors to the extent of his voting share;

(b) represent himself in the committee of creditors to the extent of his voting share;

(c) appoint an insolvency professional (other than the resolution professional) at his own cost to represent himself in the committee of creditors to the extent of his voting share; or

(d) exercise his right to vote to the extent of his voting share with one or more financial creditors jointly or severally.

# 21 (6A) Where a financial debt—

(a) is in the form of securities or deposits and the terms of the financial debt provide for appointment of a trustee or agent to act as authorised representative for all the financial creditors, such trustee or agent shall act on behalf of such financial creditors;

(b) is owed to a class of creditors exceeding the number as may be specified, other than the creditors covered under clause (a) or sub-section (6), the interim resolution professional shall make an application to the Adjudicating Authority along with the list of all financial creditors, containing the name of an insolvency professional, other than the interim resolution professional, to act as their authorised representative who shall be appointed by the Adjudicating Authority prior to the first meeting of the committee of creditors;

(c) is represented by a guardian, executor or administrator, such person shall act as authorised representative on behalf of such financial creditors,

and such authorised representative under clause (a) or clause (b) or clause (c) shall attend the meetings of the committee of creditors, and vote on behalf of each financial creditor to the extent of his voting share.

# 21(6B) The remuneration payable to the authorised representative-

(i) under clauses (a) and (c) of sub-section (6A), if any, shall be as per the terms of the financial debt or the relevant documentation; and

(ii) under clause (b) of sub-section (6A) shall be as specified which shall be form part of the insolvency resolution process costs.]

# 24(5) Subject to sub-sections (6), (6A) and (6B) of section 21, any creditor who is a member of the committee of creditors may appoint an insolvency professional other than the resolution professional to represent such creditor in a meeting of the committee of creditors:

Provided that the fees payable to such insolvency professional representing any individual creditor will be borne by such creditor.

The main import of the Section 21 & 24 of the code is that a financial creditor can attend the meeting of CoC,  himself (such person) or through a representative who has to be an insolvency professional other than IRP/RP.

Most of the financial creditors in CoC , are banks. Banks being impersonal legal entity, can they appoint their employees as their authorised representative in CoC. Is it not the violation of the provisions of the code ?

The appointment of IP’s as authorised representatives of the banks in CoC will definitely improve the working of the CoC & inculcate the professionalism in the decisions of the CoC.

In one case, CoC  mainly comprising of bankers, approved expenses, running into crores of rupees, for (a) the advocate appointed for CoC & (b) for ad-valorem success fee, whereas both of these expenses can not form the part of CIRP expenses as per Code / Regulations. Relevant provisions of the Regulations are detailed below  

1. IBBI (Insolvency Resolution Process for Corporate Person) Regulations 2016

# 31. Insolvency resolution process costs.

“Insolvency resolution process costs” under Section 5(13)(e) shall mean,

(e) other costs directly relating to the corporate insolvency resolution process and approved by the committee.

2. IBBI Circular No. IBBI/IP/013/2018 12th June, 2018 on Fee and other Expenses incurred for Corporate Insolvency Resolution Process

# 8. It is clarified that the IRPC shall not include:

(d) any expense incurred by a creditor, claimant, resolution applicant, promoter or member of the Board of Directors of the corporate debtor in relation to the CIRP;

(f) any expense incurred by a member of CoC or a professional engaged by the CoC;

(h) any expense incurred by the CoC directly;

[Explanation: Legal opinion is required on a matter. If that matter is relevant for the CIRP, the IP shall obtain it. If the CoC requires a legal opinion in addition to or in lieu of the opinion obtained or being obtained by the IP, the expense of such opinion shall not be included in IRPC.]

(j) any expense not related to CIRP. ( such as,  the success fee approved by the CoC)

    

Had CoC been consisted of professionals (IP’s) these expenses would not have been approved by the CoC. Secondly IP’s being regulated by the Board & IPA’s, their misconduct can be examined by the Board & IPA’s

It is requested that Board may clarify appointment of IP’s only as authorised representatives (AR) in CoC, through circular, if need be through amendment in the  concerned regulations.