Managing the Corporate Debtor during CIRP: Powers and Limits

During the corporate insolvency resolution process, the company does not stop. It must keep producing, paying its employees and suppliers and meeting its legal obligations, so that a buyer has a living business to acquire. But it is no longer run by its board: the insolvency professional manages it, under the oversight of the committee of creditors. This note explains who controls what during the process, the duties and limits of the professional, and the obligations of the old management.

Figure 1: The shift in control

1. Suspension of the Board, Section 17

• Vesting of management. From the appointment of the interim resolution professional, the management of the affairs of the corporate debtor vests in him, and the powers of the board of directors or partners stand suspended and are exercised by him.
• Directors remain. The directors are not removed from office; they lose their powers but retain obligations, including the duty to cooperate, and they may attend meetings of the committee of creditors without a vote (section 24(3)(b))
• Officers and banks. Officers and managers report to the professional, and banks and financial institutions holding the debtor's accounts act on his instructions and furnish all information about the accounts (section 17(1)(c) and (d))
• Continuity. The same arrangement continues under the resolution professional (section 23), and until a plan is approved or a liquidator appointed.

2. The Position of Stakeholders

Figure 2: Stakeholders during the process

• Shareholders. Shareholders cannot exercise control over the company's management during the process; where the Companies Act or other law requires shareholder approval for any action under a resolution plan, such approval is deemed to have been given (Explanation to section 30(2), inserted in 2019)
• Employees. Employees continue in service, and wages and salaries for the period of the process are part of the insolvency resolution process costs, paid in priority; dues for the period before the process are claims (Topic 34)
• Subsidiaries. A subsidiary is a separate legal person, and its assets are not assets of the corporate debtor (Explanation to section 18); the professional exercises the debtor's rights as a shareholder of the subsidiary.
• Regulators and tax authorities. Taxes and dues arising during the process must be paid as part of running the business, while dues for earlier periods must be filed as claims.

3. Running the Business, Section 20

• Going concern duty. The interim resolution professional, and then the resolution professional, must make every endeavour to protect and preserve the value of the property of the corporate debtor and manage its operations as a going concern.
• Powers. To appoint accountants, legal and other professionals; to enter into contracts on behalf of the corporate debtor or to amend or modify existing contracts; to raise interim finance, without creating a security interest over encumbered property except with the consent of the existing secured creditor or where its value is at least twice the debt; and to issue instructions to personnel.
• Oversight. The professional reports to the committee on the operations and finances of the business and seeks its approval for significant decisions.

Figure 3: The professional's toolkit during the process

4. Limits on the Professional's Powers

• Section 28. Without the prior approval of at least 66 per cent of the committee, the resolution professional cannot raise interim finance above the amount fixed by the committee, create security interests, change the capital structure, record changes in ownership, undertake related party transactions, amend constitutional documents, change the management, auditors or key personnel, or transfer rights or obligations under material contracts; actions taken in breach are void (Topic 25)
• Sale of assets, Regulation 29. The resolution professional may sell unencumbered assets outside the ordinary course of business if necessary for better realisation of value, with the approval of the committee, but the aggregate book value of assets so sold during the process cannot exceed ten per cent of the total claims admitted; the buyer gets free and marketable title.
• No selling the business. The business as a whole is transferred only through an approved resolution plan, not by sale during the process.

5. Investigating the Past

• Regulation 35A. The resolution professional must form an opinion, within the timelines set by the regulations, on whether the corporate debtor has been subjected to preferential, undervalued, extortionate credit or fraudulent transactions, and if so, apply to the NCLT for appropriate relief; a transaction or forensic audit is usually commissioned for this purpose.
• Survival of claims. Under the 2026 Amendment, avoidance proceedings survive the completion of the process, so that the benefit of recovering misappropriated value is not lost when a plan is approved (Topic 47)

6. Cooperation and Misconduct

• Section 19. The personnel of the corporate debtor, its promoters and any other person associated with its management must extend all assistance and cooperation required to manage its affairs; if they do not, the professional may apply to the NCLT, which may direct them to comply.
• Typical directions. Handing over books of account, passwords, records and possession of assets, and providing information about bank accounts and transactions.
• Consequences. Non-cooperation may lead to directions, contempt and penalties, and the conduct of the former management may be examined in fraudulent or wrongful trading proceedings under section 66 (Topic 51)

7. Frequently Asked Questions

Can the resolution professional sell a factory during the CIRP?

Only within narrow limits. Regulation 29 allows sale of unencumbered assets outside the ordinary course for better realisation, with the committee's approval, up to ten per cent of admitted claims in aggregate book value. The business as a whole can be transferred only through a resolution plan.

Do the shareholders need to approve a resolution plan?

No. Since the 2019 amendment, any approval of shareholders required under the Companies Act or other law for implementing the plan is deemed to have been given.

Are employees paid during the CIRP?

Yes. Employees who continue to work are paid for that period, and those payments form part of the insolvency resolution process costs, which rank first.

8. Related Topics

• Topic 29: Resolution Professional. Appointment and duties.
• Topic 31: Interim Finance and Process Costs. Funding the business.
• Topic 51: Fraudulent and Wrongful Trading. Liability of former management.