Individuals & Firm-Insolvency Resolution Process under IBC

Individuals & Firm-Insolvency Resolution Process under IBC

What is Eligibility for RP in the IBC Process for Individuals & Firms?

Regulation 3 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Individuals and Firms) Regulations, 2017, outlines the eligibility criteria for insolvency professionals to be appointed as resolution professionals in insolvency resolution processes for individuals and firms.

• Comprehensive list of eligibility criteria and qualifications required to become an Insolvency Professional in India. This role carries significant responsibility, given its involvement in resolving financial distress situations for individuals and businesses. To summarize, an individual who wishes to become an Insolvency Professional in the Insolvency Resolution Process for Individuals And Firms in India must:
  • Be an Indian resident and at least 18 years old.
  • He must Be of sound mind and physically fit.
  • Be solvent and not declared as insolvent.
  • Meet the qualification and experience requirements specified by the Insolvency and Bankruptcy Board of India (IBBI).
  • Not have any convictions for certain types of offenses, with a specific timeframe since the expiration of any sentence.
• Additionally, the qualifications and experience required include:
  • Clearing either the National Insolvency Examination or the Limited Insolvency Examination.
  • Having 15 years of management experience after receiving a Bachelor’s degree (if clearing the Limited Insolvency Examination).
  • He must having 10 years of experience as a chartered accountant, company secretary, cost accountant, or advocate enrolled with a Bar Council (if clearing the Limited Insolvency Examination).

• Once these criteria are met, the individual can register with an Insolvency Professional agency and begin practicing as an Insolvency Professional.
• It’s crucial for Insolvency Professionals to possess a deep understanding of financial laws and regulations, as well as strong analytical and communication skills to effectively navigate complex insolvency proceedings and facilitate fair resolutions for all stakeholders involved.

Overall, Regulation 3 ensures that appointed resolution professionals maintain independence, integrity, and impartiality throughout the insolvency resolution process, thereby safeguarding the interests of all stakeholders involved:

• An insolvency professional, along with all partners and directors of the insolvency professional entity with which they are associated, must not be associates of the debtor. This ensures independence and impartiality in the resolution process.
• Insolvency professional or the insolvency professional entity with which they are associated cannot be under a restraint order issued by the Board. This prevents individuals or entities facing disciplinary actions from participating in resolution processes.
• An insolvency professional shall not continue as a resolution professional if the insolvency professional entity with which they are associated, or any other partner or director of such entity, represents any other stakeholder in the same insolvency resolution process. This provision aims to prevent conflicts of interest that could compromise the integrity of the resolution process.

Proof of claims of creditors (Chapter II)

Regulations 5, 6, 7, and 9 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Individuals and Firms) Regulations, 2017, outline the procedures regarding proof of claims by creditors, verification of claims, constitution of the committee of creditors, and preparation of a statement of affairs by the resolution professional. These regulations ensure a structured and transparent process for handling creditor claims, verifying them, constituting the committee of creditors, and preparing a comprehensive statement of affairs, thereby facilitating the effective resolution of insolvency cases.  Let’s summarize these regulations:

Proof of Claims (Regulation 5):

Creditors are required to submit proof of their claims to the resolution professional instead of Form 1.

Verification of Claims (Regulation 6):

• Upon receiving claims, the resolution professional must promptly commence their verification.
• List of creditors must be prepared, reflecting the name of each creditor, the amount claimed, the amount admitted, and any security interest related to the claims, if applicable.
• A report certifying the constitution of the committee of creditors based on the prepared list must be filed with the Adjudicating Authority.

Constitution of Committee of Creditors (Regulation 7):

• The committee of creditors, formed under Regulation 6(2), includes:
  • Ten largest creditors by value.
  • One representative elected by all workmen (excluding those included in the ten largest creditors).
  • One representative elected by all employees (excluding those included in the ten largest creditors).

Preparation of Statement of Affairs (Regulation 9):

• The resolution professional is tasked with preparing a statement of affairs, which should include various details such as:
  • Debtor’s assets and liabilities for the previous three years.
  • Details of excluded assets and debts of the debtor.
  • Secured and unsecured debts along with creditor details for the previous three years.
  • Particulars of debts owed by the debtor to associates for the previous three years.
  • Details of guarantees given in relation to the debtor’s debts, including the involvement of any guarantors who are associates of the debtor.
  • Financial statements for the debtor’s business or firm for the previous three years, if applicable.
  • Wealth tax statements filed by the debtor for the previous five years, if any.

Calculating the voting share for the meeting of creditors

Regulation 19 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Individuals and Firms) Regulations, 2017, outlines the method for calculating the voting share for the meeting of creditors. Overall, Regulation 19 ensures a fair and proportional representation of creditors in the decision-making process during the insolvency resolution proceedings, based on the amount of debt owed to them. This helps maintain transparency and equity in the resolution process.

Calculation of Voting Share:

Each member of the committee, as per Regulation 7(1), is entitled to a voting share proportionate to the debt owed to them or represented by their representative. This means that creditors’ influence in the decision-making process is directly correlated with the amount of debt they are owed.

1. Calculation of Debt: The debt owed to any creditor is determined as of the insolvency commencement date, based on the claims admitted. This ensures that the voting share accurately reflects the creditor’s financial stake in the insolvency resolution process.
2. Definition of Unliquidated Debt: Regulation 19 also clarifies that for the purposes of Section 109(3), an unliquidated debt refers to a debt to which a value cannot be assigned by the resolution professional. This distinction is important for determining the voting share accurately.
3. Explanation of Total Debt: The total debt, as mentioned in Regulation 19(1), is the sum of three components:
   • The debt owed to the creditors listed in Regulation 7(1)(a).
   • Aggregate debt owed to workmen under Regulation 7(1)(b), if applicable.
   • The aggregate debt owed to employees under Regulation 7(1)(c), if applicable.

By summing up these components, the total debt is calculated, forming the denominator for determining the voting share of each creditor.

Repayment Plan (Regulation 22- Chapter VI)

Regulation 22 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Individuals and Firms) Regulations, 2017, delineates the comprehensive contents of a repayment plan, as well as additional provisions that may be included as necessary. Contents of the Repayment Plan (Section 105(3)(c)):

1. Duration of the Repayment Plan: Specifies the time frame within which the repayment plan is to be executed.
2. Implementation Schedule: Outlines the timetable for executing the repayment plan, including proposed dates for distributing payments to creditors along with estimated amounts.
3. Source of Funds: Identifies the funding sources for covering the costs associated with the insolvency resolution process, prioritizing these payments over others in the repayment plan.
4. Minimum Budget for Survival: Establishes a minimum budget necessary for the survival of the debtor and their immediate family throughout the duration of the repayment plan.
5. Business Operations (if applicable): Describes how any business owned by the debtor will be operated during the repayment plan and clarifies the role of the resolution professional in overseeing these operations.
6. Management of Funds: Specifies how funds designated for the repayment plan will be managed, including banking, investment, or other handling procedures until distribution to creditors.
7. List of Creditors: Provides a comprehensive list of all creditors involved in the repayment plan.
8. Functions of the Resolution Professional: Defines the responsibilities and tasks to be undertaken by the resolution professional, including supervision and implementation of the repayment plan.
9. Contractual Terms Variation: Allows for modification of contractual terms or transactions involving the debtor as necessary for the execution of the repayment plan.
10. Excluded Assets Treatment: Ensures that excluded assets, whose actual value exceeds the prescribed threshold, are appropriately handled and not transferred or sold.
11. Financing Requirements: Specifies the financing needed for the insolvency resolution process.
12. Discharge Terms and Conditions: Outlines the terms and conditions under which the debtor will be discharged from their obligations.

Additional Provisions (Regulation 22(2)):

This section permits the inclusion of further provisions in the repayment plan, such as:

• Transfer or sale of debtor’s assets.
• Administration or disposal of debtor’s funds.
• Satisfaction or modification of security interests.
• Reduction in payable amounts to creditors.
• Waiving or curing of any breach of debtor’s debt.
• Modification of payment terms.
• Amendment of partnership deed (if applicable).
• Utilization of debtor’s income for debt repayment.
• Ratification of insolvency resolution costs.
• Handling of funds not paid to creditors by the end of the repayment plan.
• Any other matters as required by the committee of creditors.
• These provisions ensure that the repayment plan is comprehensive, covering various aspects necessary for the successful resolution of the debtor’s insolvency.

Completion of the repayment plan (Regulation 26)

Completion of a repayment plan in the context of insolvency resolution processes for individuals and firms

Regulation 26 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Individuals and Firms) Regulations, 2017, outlines the criteria for the completion of a repayment plan in the context of insolvency resolution processes for individuals and firms. According to Regulation 26:

1. A repayment plan is considered complete when, in the opinion of the resolution professional, the debtor has fulfilled all obligations specified within the duration of the repayment plan.
2. Upon satisfying the conditions mentioned in point 1, the resolution professional issues a notice of completion under section 117(1)(a).
3. The resolution professional can issue a notice of completion even if the debtor has substantially complied with all obligations under the repayment plan.
4. Subsequently, the Adjudicating Authority considers the notice of completion and the report provided under section 117(1) when making a decision on issuing the discharge order.

This regulation essentially sets the criteria and procedure for determining when a repayment plan has been successfully executed by the debtor, allowing for the formal conclusion of the insolvency resolution process. The involvement of the resolution professional and the Adjudicating Authority ensures that the process is carried out in accordance with the relevant legal provisions and that the interests of all stakeholders, including creditors and the debtor, are duly considered

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