Interim Resolution Professional and Public Announcement

The moment an insolvency application is admitted, control of the company changes hands. The board is suspended, an interim resolution professional takes charge, and a public announcement invites every creditor to file its claim. Within about a month, the committee of creditors is formed and decides whether the interim professional should continue as resolution professional. This note explains sections 13 and 15 to 20 and 22, which govern this opening stage, and the regulations that fix its timeline.

1. The Order of Admission, Section 13

• Three steps. After admission, the NCLT by order (a) declares a moratorium under section 14, (b) causes a public announcement of the initiation of the CIRP and calls for the submission of claims under section 15, and (c) appoints an interim resolution professional under section 16.
• Timing. The public announcement is made immediately after the appointment of the IRP; Regulation 6 of the CIRP Regulations requires it within three days of the appointment.

Figure 1: The first thirty days (latest model timeline)

2. Appointment of the IRP, Section 16

• Date. The NCLT appoints the IRP on the insolvency commencement date (section 16(1)); if the appointment is made later, the commencement date shifts to that date (proviso to section 5(12))
• Who is appointed. Where a financial creditor or the corporate debtor has proposed a professional, that person is appointed if no disciplinary proceeding is pending against him; where an operational creditor has not proposed one, the NCLT refers the matter to the IBBI, which recommends a name within ten days.
• Term. The IRP continues until a resolution professional is appointed under section 22.

3. The Public Announcement, Section 15

Figure 2: Contents of the public announcement

• Contents. The name and address of the corporate debtor, the authority with which it is registered, the last date for submission of claims, the details of the IRP, the penalties for false or misleading claims, and the date on which the CIRP is expected to close.
• Classes of creditors. Where there are classes of financial creditors, such as homebuyers or debenture holders, the announcement identifies the class and names three insolvency professionals from whom the class may choose its authorised representative (Topic 27)
• Publication. In Form A, in one English and one regional language newspaper with wide circulation where the registered office and principal office are located, on the corporate debtor's website if any, and on the IBBI's website.
• Claims. The last date for submission of claims is fourteen days from the IRP's appointment, though later claims may be filed up to the ninetieth day of the process under Regulation 12 (Topic 33)

4. Management by the IRP, Section 17

• Change of control. From the date of appointment of the IRP, the management of the affairs of the corporate debtor vests in the IRP, and the powers of the board of directors or partners stand suspended and are exercised by the IRP.
• Officers and banks. The officers and managers of the corporate debtor report to the IRP, and financial institutions maintaining its accounts act on the IRP's instructions.
• Authority. The IRP is authorised to act and execute documents in the name and on behalf of the corporate debtor.

5. Duties, Cooperation and Going Concern

Figure 3: Sections 16 to 20 at a glance

• Section 18. The IRP must collect all information about the business, operations and finances of the corporate debtor; receive and collate claims; constitute the committee of creditors; monitor the assets; file information with an information utility; and take control and custody of assets over which the debtor has ownership rights as recorded in its balance sheet or other records.
• Meaning of assets. The Explanation to section 18 excludes assets owned by third parties in the debtor's possession under trust or contractual arrangements, including bailment, assets of any Indian or foreign subsidiary of the debtor, and other assets notified by the Central Government in consultation with a financial sector regulator.
• Section 19. The personnel, promoters and other persons associated with the management of the corporate debtor must extend all assistance and cooperation; if they do not, the IRP may apply to the NCLT for directions.
• Section 20. The IRP must preserve the value of the property and manage the operations of the corporate debtor as a going concern, and may appoint accountants, legal and other professionals, enter into or modify contracts, raise interim finance subject to the limits on encumbered property, and issue instructions to personnel.

6. The First CoC Meeting and the RP, Section 22

• Constitution of the CoC. After collating claims, the IRP files a report certifying the constitution of the committee of creditors, within two days of verifying the claims (Regulation 17)
• First meeting. The first meeting of the committee must be held within seven days of its constitution (section 22(1))
• Decision on the RP. At that meeting, the committee, by a vote of at least 66 per cent of the voting share, may resolve either to appoint the IRP as the resolution professional or to replace the IRP by another resolution professional (section 22(2))
• Confirmation. If the IRP is to be replaced, the NCLT forwards the name of the proposed resolution professional to the IBBI for confirmation, and appoints him after confirmation; until then, the IRP continues to act (Topic 29)

7. Frequently Asked Questions

What happens to the board of directors when CIRP begins?

Its powers are suspended from the date of the IRP's appointment and are exercised by the IRP under section 17. The directors remain in office and must cooperate under section 19, but cannot manage the company.

Can the IRP take over goods lying in the company's warehouse that belong to a customer?

No. The Explanation to section 18 excludes assets owned by third parties and held by the debtor under trust or contractual arrangements such as bailment.

Who decides whether the IRP continues as resolution professional?

The committee of creditors, at its first meeting, by a vote of at least 66 per cent, under section 22(2). If it proposes a different professional, the IBBI must confirm him before the NCLT appoints him.

8. Related Topics

• Topic 25: Committee of Creditors. Constitution and voting.
• Topic 29: Resolution Professional. Appointment, duties and replacement.
• Topic 33: Claims. Submission, verification and collation.