Further to notification of the IBBI (Insolvency Resolution Process for Corporate Persons) (Third Amendment) Regulations, 2018, dated 3 July 2018 (“CIRP Amendment”), the Insolvency and Bankruptcy Board of India (“IBBI”) has applied the provisions of CIRP Amendment in relation to appointment of authorised representative for class of creditors, to the existing corporate insolvency resolution processes (“CIRP”) as well, vide a clarificatory circular issued on 13 July 2018 (available here) (“IBBI Circular”). The IBBI Circular states that such appointments are matters of procedure.
As per the amendment introduced by the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018 promulgated on 6 June 2018 (“2018 Ordinance”), it had provided for ability of appointment of authorised representative for “class of creditors”, that is, creditors other than creditors in relation to consortium arrangements, syndicate facility, where financial debt is in form of securities, as per section 21(6A)(b) of the Insolvency and Bankruptcy Code, 2016 (“Code”), which has provided for following read with CIRP Amendment:
- At least 10 of such financial creditors will constitute a class;
- Interim resolution professional (“IRP”) to ascertain such class of creditors;
- IRP to further identify 3 insolvency professionals (“IP”) amongst whom the one who gets maximum votes from the members of such class, will be appointed as authorised representative of such class of creditors for voting at Committee of Creditors (“COC”);
- Each of such IP to give their consent in Form AB to act as authorised representative;
- IRP to submit the highest voted choice IP to the National Company Law Tribunal (“NCLT”) within 2 days of verification of claims and any delay in appointment of the authorised representative for any class of creditors will not affect the validity of any decision taken by the COC;
- Authorised representative will have no role in receipt or verification of claims of creditors of the class he represents;
- Voting share of a creditor in a class will be in proportion to the financial debt which includes an interest at the rate of 8% percent per annum unless a different rate has been agreed to between the parties;
- Authorised representative is entitled to fees for every COC meeting attended by him depending upon the number of creditors he is representing.
Applicability to existing CIRPs vide the IBBI Circular
As per the IBBI Circular:
- It is necessary that an ongoing CIRP, where creditors belonging to a class are otherwise not represented in the COC, uses this simplified mechanism, irrespective of the stage of the process.
- The resolution professional (“RP”), who exercises the powers and performs the duties as vested or conferred on the IRP under section 23 (2) of the Code, shall facilitate representation through authorised representative(s).
- It is clarified that wherever the approval of resolution plan under regulation 39 (3) of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (“CIRP Regulations”) is at least 15 days away, the RP shall expeditiously obtain, by electronic means, the choice of the IP from creditors in a class to act as the authorised representative of the class and proceed further in the manner as specified in regulation 16A of the CIRP Regulations.