In insolvency proceedings, the insolvency practitioner takes on multiple roles, each demanding different responsibilities and skills depending on the stage of the process. One of their primary tasks is ensuring that the interests of the corporate debtor, creditors, stakeholders, and other parties are balanced without causing harm to another. Practitioners may act as liquidators, administrators, nominees, or supervisors, depending on the debtor’s situation. Given the complexity of their duties, insolvency practitioners require a diverse set of skills. They ensure that the legal and financial aspects of insolvency and liquidation are handled efficiently and transparently while working towards the company’s revival, restructuring, rehabilitation, or winding-up. These common job roles in the insolvency field highlight the critical responsibilities that professionals in this domain must navigate.
Insolvency Practitioner Responsibilities
As per the definition under section 3(19) of the Insolvency and Bankruptcy Code, 2016 (IBC), an insolvency professional (IP) is an individual enrolled with the Insolvency Professional Agency and registered with the Insolvency and Bankruptcy Board of India (IBBI). They act on behalf of an individual or company facing financial distress. According to IBC and relevant regulations, the primary responsibility of an IP is to assess the financial condition of the entity and ensure that the insolvency process is efficient and adheres to legal and regulatory requirements. This includes overseeing various common job roles in the insolvency field, ensuring transparency, and managing the restructuring, liquidation, or revival of the debtor’s financial situation. Read related article Who can initiate corporate insolvency resolution process
(i) Providing Advice
The main of the insolvency process is to revive the company and avoid liquidation. Insolvency practitioners advise the corporate debtor on a plan to save the company and what options they have to do so. This calls for the practitioners to work with the debtor, creditors, directors of the company, members of the company, and other involved parties to devise a plan that reflects the interests of each party.
(ii) Negotiating With Creditors
On behalf of the corporate debtor, the insolvency professional negotiates with creditors to reach an agreement that serves the best interest of both the debtor and the creditors, ensuring that the creditors receive the debt owed to them. The insolvency practitioner must consider various factors, including the legitimacy of the creditor, the reasonableness of their demands, their bargaining position, and the company’s payment margin. These negotiations are part of the common job roles in the insolvency field, requiring a careful balance of legal knowledge, financial acumen, and strategic thinking to achieve a fair outcome for all parties involved.
(iii) Selling a Company’s Assets
The insolvency practitioner includes evaluation of the company’s assets and selling them to potential buyers or investors to revive the company during the insolvency process. During the liquidation process, the assets are sold to maximise the returns of the corporate debtor. Essentially, the practitioner evaluates the assets of the company, assessing their worth and advertising these assets to potential buyers at the best possible process. From the money received from these sales, the company will distribute it to ease the cash flow and reduce the debts the corporate debtor.
(iv) Reporting to Creditors
It is the right of the creditors to be informed about any updates or decisions made during the insolvency proceedings. As key stakeholders in the process, creditors have a vested interest, as their debts are integral to the insolvency resolution. Consequently, the insolvency practitioner is responsible for maintaining transparency and is obligated to keep the creditors informed of any changes or developments. This role of ensuring communication and transparency is among the common job roles in the insolvency field, reflecting the practitioner’s duty to uphold fairness and accountability throughout the process.
(v) Investigating Company Activities
Insolvency practitioners have a role in investigating the company’s affairs and their business operations. If they find any misconduct, fraudulent behaviour, concerns about decisions, etc., they should file a report with the Insolvency Service, any matter which may require a more in-depth investigation. This includes investigating the director’s conduct, the financial records of the company, and the history of the company.
(vi) Distributing Collected Money
Referencing point (iii), the money collected during the insolvency or liquidation stage from selling the company’s assets, is distributed to creditors. This includes verification of the creditor’s claims, consolidation of these claims, and selling these claims to maximise returns. During the liquidation process, the insolvency practitioner has the responsibility to distribute the proceeds as per the priority listed under the Code. Adhering to legal compliances, keeping in mind the financial distress of the corporate debtors and the interests of the creditors and other stakeholders.
What Insolvency Practitioner Roles?
One of the primary responsibilities of an insolvency practitioner is to resolve the financial distress of the company while maintaining the trust of the creditors and other involved parties. Throughout the insolvency and liquidation proceedings, the insolvency practitioner must take on various positions, each demanding specific skills and expertise. These common job roles in the insolvency field include acting as a liquidator, administrator, nominee, or supervisor, all of which are crucial in guiding the process toward an efficient and transparent resolution.
(i) Liquidator
If the insolvency process fails, the insolvency professional takes the role of the liquidation during the liquidation process. This may be done either voluntarily by the company itself or compulsorily by the Committee of Creditors or by the Adjudicating Authority. Their main role as a liquidator is to realise the corporate debtor’s assets to maximise the returns, verify claims submitted by the creditors, distribute the proceeds as per section 53 of IBC, and dissolve the company under section 54 of IBC. The liquidators also conduct investigations of the company’s directors for the three years preceding the liquidation process as listed under section 35(1)(l) of IBC.
(ii) Administrator
The role of an administrator involves the insolvency practitioner taking over the business operations of the corporate debtor, particularly during the pre-pack insolvency resolution process. As an administrator, the practitioner collaborates with creditors to create a resolution plan aimed at successfully reviving, restructuring, or rehabilitating the company. This plan is then submitted to the Committee of Creditors (CoC) and the National Company Law Tribunal (NCLT) for approval. Acting as an administrator is one of the common job roles in the insolvency field, requiring strong leadership and coordination skills to navigate complex financial challenges.
(iii) Nominee and Supervisor
In company voluntary arrangements (CVA), the insolvency practitioner is a nominee and a supervisor. They help to prepare this proposal as a nominee. Next, a statement of affairs will be produced, and the creditors will be informed of how much they should receive. Afterwards, the insolvency practitioner will be a ‘supervisor’ and administer the process. This includes supervising the current business operations to complete the CVA to ensure the success of the insolvency process.
What skills does an insolvency practitioner use?
(i)Communication
An IP is in constant contact with the corporate debtor, its creditors and the stakeholders. It becomes important for the IP to have excellent communication skills to explain the legal and financial proceedings to these parties for transparency at every stage of the CIRP and to represent their clients before the court in any legal dispute. These skills are also beneficial in negotiations as an IP is able to articulate their client’s position, which can affect the outcome of the negotiation.
(ii)Negotiation
An insolvency practitioner acts as an intermediary between the corporate debtor and its creditors; negotiating skills help reach an agreement reflecting the interests of the debtor, its creditors and other stakeholders. These skills are useful in balancing the financial capabilities of the corporate debtor and the payment demands of the creditors. If the negotiation is successful, it may lead to the revival of the company.
(iii)Problem-solving
Insolvency Practitioners deal with financially distressed companies that have to pay back their debts to creditors and are responsible to stakeholders. By having problem-solving skills, an insolvency practitioner can face the challenges of handling the insolvency process, its legal disputes, and negotiating with debtors and creditors while giving financially viable solutions.
(iv)Technical knowledge
One of the points for eligibility of an insolvency practitioner is having experience in accounts, finance, or law. To become an official practitioner, the candidate must also pass an examination that tests their knowledge of insolvency law, economics, and related subjects. Even during their role as insolvency practitioners, it is their duty to keep updated with the required knowledge in their field. This ensures that they can guide through the complexity of cases and provide sound advice to financially distressed companies.
Conclusion
To summarise, each role and responsibility requires specialised skills and abilities. Regardless of their role as liquidators, administrators, nominees and supervisors, these practitioners in the insolvency field advise and navigate financially distressed companies throughout the insolvency or liquidation process. With their expertise and clear communication and negotiating skills between the different parties, their financial and analytical skills guarantee efficiency and transparency within the strict timeline prescribed under the Code and the relevant regulations.