Appointment of Liquidator other than IRP/RP

 

Appointment of Liquidator other than IRP/RP

Query; Whether the directions/guidelines issued by the Board vide letter no. Liq-12011/214/2023-IBBI/840 dated 18.07.2023 addressed to The Secretary, National Company Law Tribunal, Principal Bench, New Delhi, are consistent with the provisions of the Code.

Let's examine the provisions of the Code, Regulations & recommendations of BLRC.

A. Insolvency and Bankruptcy Code, 2016.

# 34. Appointment of liquidator and fee to be paid. -

(1) Where the Adjudicating Authority passes an order for liquidation of the corporate debtor under section 33, the resolution professional appointed for the corporate insolvency resolution process under 3[Chapter II shall, subject to submission of a written consent by the

resolution professional to the Adjudicatory Authority in specified form,] shall act as the liquidator for the purposes of liquidation unless replaced by the Adjudicating Authority under sub- section (4).

(2) 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.

(3) The personnel of the corporate debtor shall extend all assistance and cooperation to the liquidator as may be required by him in managing the affairs of the corporate debtor and provisions of section 19 shall apply in relation to voluntary liquidation process as they apply in relation to liquidation process with the substitution of references to the liquidator for references to the interim resolution professional. (4) The Adjudicating Authority shall by order replace the resolution professional, if–

- (a) the resolution plan submitted by the resolution professional under section 30 was rejected for failure to meet the requirements mentioned in sub-section (2) of section 30; or - (b) the Board recommends the replacement of a resolution professional to the Adjudicating Authority for reasons to be recorded in writing; or

- (c) the resolution professional fails to submit written consent under sub-section (1).

(5) For the purposes of 3[clause (a) and clause (c)] of sub-section (4), the Adjudicating Authority may direct the Board to propose name of another insolvency professional to be appointed as a liquidator.

(6) The Board shall propose the name of another insolvency professional 4[along with written consent from the insolvency professional in the specified form] within ten days of the direction issued by the Adjudicating Authority under sub-section (5).

(7) The Adjudicating Authority shall, on receipt of the proposal of the Board for the appointment of an insolvency professional as liquidator, by an order appoint such insolvency professional as the liquidator.

(8) An insolvency professional proposed to be appointed as a liquidator shall charge such fee for the conduct of the liquidation proceedings and in such proportion to the value of the liquidation estate assets, as may be specified by the Board.

(9) The fees for the conduct of the liquidation proceedings under sub-section (8) shall be paid to the liquidator from the proceeds of the liquidation estate under section 53. Page No. 

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B. Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016.

# 3. Eligibility for appointment as liquidator.

(1) An insolvency professional shall be eligible to be appointed as a liquidator if he, and every partner or director of the insolvency professional entity of which he is a partner or director, is independent of the corporate debtor.

Explanation– A person shall be considered independent of the corporate debtor, if he-

(a) is eligible to be appointed as an independent director on the board of the corporate debtor under section 149 of the Companies Act, 2013 (18 of 2013), where the corporate debtor is a company;

(b) is not a related party of the corporate debtor; or

(c) has not been an employee or proprietor or a partner:

- (i) of a firm of auditors or secretarial auditors or cost auditors of the corporate debtor; or

- (ii) of a legal or a consulting firm, that has or had any transaction with the corporate debtor contributing ten per cent or more of the gross turnover of such firm, in the last three financial years. (2) A liquidator shall disclose the existence of any pecuniary or personal relationship with the concerned corporate debtor or any of its stakeholders as soon as he becomes aware of it, to the Board and the Adjudicating Authority.

(3) An insolvency professional shall not continue as a liquidator if the insolvency professional entity of which he is a director or partner, or any other partner or director of such insolvency professional entity represents any other stakeholder in the same liquidation process.

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C. BLRC Recommendations;

5.5.3 Steps at the start of the Liquidation

A liquidation order is accompanied by a set of other orders issued by the Adjudicator to:

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b. Appoint a Liquidator

The RP from the IRP may continue as the liquidator as long as the Regulator raises no objection to her continuing in this role.

If there is a complaint against the RP at any stage during the IRP or after the liquidation order is passed, the Adjudicator must apply to the Regulator for an alternative RP as a replacement.

The roles of the liquidator is described in detail in Section 5.5.9.

Box 5.17: Drafting instructions for the appointment of a Liquidator

1. The liquidator can be selected through any of the following ways:

a. The RP of the IRP can continue as the liquidator.

b. The Regulator can recommend, with reason, a new liquidator to replace the RP to the Adjudicator.

c. The Adjudicator can apply to the Regulator for a replacement liquidator.

2. The Adjudicator will either issue an order for the RP to continue as a liquidator, or the Adjudicator will issue an order to appoint the liquidator recommended by the Regulator.

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D. High Court Karnataka orders dated 09.01.2024

Heard the learned counsel for the petitioner and the learned Additional Solicitor General of India, Sri.Aravind Kamath representing the Insolvency and Bankruptcy Board of India (‘the Board’ for short).

The petitioner calls in question a Circular dated 18.07.2023 issued by the Board, which directs that the Resolution Professional should not continue as a Resolution Professional in the event the Company is said to be put in to Liquidation or act as a Liquidator for the process of liquidation of the said particular Company.

This the learned counsel for the petitioner submits is a sweeping direction, which disturbs the petitioner to act as Liquidator on the strength of him being appointed as a Resolution Professional and therefore submits that his rights are taken away of acting as a Liquidator. He would further contend that such sweeping directions cannot be given by the Board, invoking its power under Section 34(4)(b) of the IBC.

The matter would require consideration.

Learned ASGI seeks two weeks time to justify the issuance of the general directions by the Board.Till such time, the petitioner insofar as he is appointed as Resolution Professional/Liquidator in the subject liquidation shall not be precipitated.

Registry to print the name of the learned counsel Smt.Anupama Hegde as appearing for respondent/Board.

Observations; Hon’ble High Court has not stayed the operation of the directions as per letter 18.07.2023. It has stayed the operation of the directions insofar the petitioner is concerned.

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E. IBBI Letter No. Liq-12011/214/2023-IBBI/840 dated 18.07.2023 addressed to The Secretary, National Company Law Tribunal, Principal Bench, New Delhi.

Para # 3. In view of above justification, the Board in exercise of its powers conferred under section 34(4)(b), recommends that an IP other than the RP/IRP may be appointed as liquidator in all the cases where liquidator order is to be passed henceforth. The liquidator can be appointed from the panel list of IBBI.

Observations; Board does not have any powers to issue any directions to the Adjudicating Authority.

- # 196. Powers and functions of Board. -

- (1) The Board shall, subject to the general direction of the Central Government, perform all or any of the following functions namely: -

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- (p) issue necessary guidelines to the insolvency professional agencies, insolvency professionals and information utilities;

In my view, NCLT should not have entertained any such directions/guidelines issued by the Board 

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F. Analysis;

a. Provisions of the Code read with the recommendations of BLRC provide that normally IRP/RP will continue/appointed as Liquidator unless the Board (Regulator) has some reasons, obviously based on some perverse findings against specific IRP/RP.

b. Thus the generalized sweeping recommendations of the Board as per letter dated 18.07.2023 are against the provisions of the Code and definitely beyond the powers for issuing directions/guidelines to Adjudicating Authority under Section 196 of the Code.

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, commercial or otherwise. One 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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