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INSOLVENCY?

Author - Rahul Dhote and Associate Shristi Keshri 

The term insolvency means a situation where the debtor is unable to pay off his debts; as his liabilities exceeds his assets. It is a state of financial distress where an individual/entity is unable to raise enough funds to pay off his debts and obligations due. Insolvency can emerge from poor money administration, decrease in cash inflow or increase in expenses. The solution to this problem might get settled by changing the mode of repayment of loan by any other alternative payment method if not, then legal actions will be taken against the person insolvent by selling off all the assets held by him to clear off his outstanding debts and financial obligations. Only a Court has the power to declare a person insolvent and an official is hired by the Government of India to release all the assets of the insolvent and settle it against the creditors.

INSOLVENCY RESOLUTION PROFESSIONAL.

To enhance the procedure of insolvency resolution, The Insolvency and Bankruptcy Board of India (IBBC) was set up on 1^st October, 2016 in accordance with the provisions of The Insolvency and Bankruptcy Code 2016 (hereinafter referred to as ‘IBC’). The Insolvency and Bankruptcy Board of India is entrusted with giving a smooth and time bound mechanism for insolvency process for individuals, partnership firms, companies, organizations and LLP’s. IBC in order to facilitate the process of Insolvency resolution has a provision related to the appointment of an Insolvency Resolution Professional.

As most of the banks and financial institutions tend to endeavor to determine and resolve the bad debts and loans related issues which are a burden on its ability and represent as a sort of hazard and pose as a threat and risk to their ledger record execution, there lies a huge demand for the insolvency resolution professionals. These insolvency professionals will be required to manage the procedure and run the complete insolvency resolution procedure for corporate firms and entities as per the strategy laid down by the Code.

They are the people endowed with specialized knowledge and most importantly, recognized by the IBBI. The most appropriate people for holding the post as Insolvency Professionals are the Chartered Accountants, Cost Accountants and Company Secretaries. They play an important role in resolution and liquidation processes of the companies and their duties incorporate great expert ability and with good professional ethics to meet the standards and objectives set by the Code.

As per the definition of bare act an “Insolvency Professional”[1] means a person enrolled under Section 206 with an insolvency professional agency and its member and registered with the Board as an Insolvency Professional under Section 207.

Section 206[2] states that only those people whose name is enlisted as insolvency professional with Insolvency and Bankruptcy Board of India (IBBI) will be considered eligible to deal and monitor the insolvency related issues as per the Code, and abide by the rules and regulations made thereunder. He will also be conducting the Corporate Insolvency Resolution Process. (CIRP)

ELIGIBILITY CRITERIA OF INSOLVENCY PROFESSIONALS.

The individual applying must fulfil the following criteria in order to get his/her name registered as Insolvency Professionals[3]:

• Must be a major
• Must be a resident of India
• Must not have been convicted by a Court having competent jurisdiction with an offence punishable with imprisonment for a term exceeding six months or any offence involving immorality, and a duration of 5 years has not elapsed from the date of the sentence.
• He is an undischarged insolvent or has applied for adjudication to be declared as an insolvent.
• Must be a fit and proper person; a person of a sound mind. 

QUALIFICATIONS AND EXPERIENCE REQUIRED.

Insolvency and Bankruptcy Board of India has been entrusted by the IBC with the responsibility to frame a proper procedure and make a mechanism to have recovery proceedings and conduct the examination which will empower Chartered Accountants, Cost Accountants, Company Secretaries and Advocates to qualify as Insolvency Professional.[4]

• Has passed the Limited Insolvency Examination within a year of enrollment with the insolvency professional agency.
• Has successfully completed a pre-enrollment course as required by the Board by an Insolvency Professional.
• Has qualified the National Insolvency Programme and Graduate Insolvency Programme as may be approved by the IBBI.
• Nothing less than Fifteen years of experience in the field of management, after receiving a bachelor’s degree from an university recognized by law.
• Ten years of experience:

1. A Chartered Accountant enlisted as a member under Institute of Chartered Accountants of India.
2. A Company Secretary enlisted as a member under the Institute of Company Secretaries of India.
3. Cost Accountant enlisted as a member under the Institute of Cost Accountants of India.
4. An advocate enrolled with the Bar Council of India.

[1] Section 3(19) of The Insolvency and Bankruptcy Code,2016

[2] Section 206 of The Insolvency and Bankruptcy Code, 2016

[3] Section 4 of Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016

[4] Section 5 of Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016