The Insolvency and Bankruptcy Code, 2016 consolidates the previously fragmented insolvency legal system. Under this framework, Authorised Representative under IBC to represent the stakeholders during the resolution process. The primary objective of appointing an authorised representative is to ensure the interests of the creditors are represented throughout the insolvency process. Hence, authorised representatives have an important role in the corporate insolvency resolution process.
Who are Authorised Representative under IBC?
The definition of ‘authorised representative’ is not given in the Insolvency and Bankruptcy Code, 2016 (hereon forward known as “the IBC”) or the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (hereon forward known as “the Regulations, 2016”). Section 21(6) of the IBC, the financial creditors appoint an insolvency professional to represent himself in the Committee of Creditors (CoC) to the extent of his voting share. Referencing Circular No. IBBI/CIRP/015/2018, the insolvency professional, who is the choice of the highest number of creditors in the class, is appointed as the Authorised Representative under IBC of the creditors of the respective class. This individual collects voting instructions from the respective class of creditors, attends the meetings of the CoC, and casts votes in respect of the said class following the instructions he receives from the creditors.
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Eligibility Criteria for an Authorised Representative under IBC
As per the Regulation 4A of the Regulations, 2016, the interim resolution professional (IRP) or the resolution professional (RP) shall act as the authorised representative of the financial creditors. This regulation was inserted by Notification No. IBBI/2018-19/GN/REG031, dt. 3rd July, 2018. According to this, the foremost criterion of an Authorised Representative under IBC is that the individual must be registered with the Insolvency and Bankruptcy Board of India (IBBI) as an insolvency professional. This individual will also be independent of the corporate debtor and the RP as well as not facing any disciplinary proceedings.
Choice of an Authorised Representative under IBC
The choice of an Authorised Representative under IBC is listed under Regulation 4A of the Regulations, 2016 with amendments under Notification No. IBBI/2020-21/GN/REG064 and Notification No. IBBI/2020-21/GN/REG075. As per this Regulation, choosing an authorised representative depends on:
- The IRP shall ascertain a class of creditors on the examination of the books of account and other relevant records of the corporate debtor.
- For the representation of creditors in a class ascertained above, the IRP shall identify three insolvency professionals who are not his relatives or related parties, having their addresses registered with the IBBI, in the State or Union Territory, which has the highest number of creditors in the class as per their addresses in the records of the corporate debtor.
- Eligible to be a resolution professional under the Regulations, 2016.
- Willing to act as an Authorised Representative under IBC of creditors in the class.
- The IRP must also obtain written consent to act as authorised representative, given in Form AB of the Regulations, 2016.
Hence, the class of creditors must be able to choose their representative. In reality, the creditors are not aware of the characteristics, capabilities, or records of the insolvency professional. As per Regulation 16B, if an Authorised Representative under IBC is appointed for a class, then the creditors in that class will not be allowed to attend the meeting of the CoC.
Evolving Role of the Authorised Representative under IBC
Through Circular No. IBBI/CIRP/015/2018, the IBBI clarified that wherever the approval of the resolution plan under Regulation 39(3) is at least 15 days away, the RP shall expeditiously obtain, by electronic means, the choice of an insolvency professional from creditors in a class to act as the authorised representative of the class and proceed as per Regulation 16A. Reading section 21(6) of the IBC and Clarification No. IBBI/CIRP/JIL, dt. 6th December 2019, the RP or the authorised representative must conduct the insolvency process, which includes voting on behalf of creditors, and complying with the IBC and Regulations. These amendments clarified that an Authorised Representative under IBC of the financial creditors should be a registered insolvency professional and represent the creditors in the meetings of the CoC.
Critical Analysis of the Role of Authorised Representative under IBC
The rights and duties of AR in the insolvency process are given under section 25A of the IBC:
- The authorised representative under section 21(6), section 21(6A), or section 24(5) shall have the right to participate and vote in meetings of the committee of creditors on behalf of the financial creditor he represents per the prior voting instructions of such creditors obtained through physical or electronic means.
- This person has the duty to circulate the agenda and minutes of the meeting of the committee of creditors to the financial creditor he represents
- The authorised representative under section 21(6A) shall cast his vote on behalf of all the financial creditors he represents in accordance with the decision taken by a vote of more than 55% of the voting share of the financial creditors he represents, who have cast their vote.
- The authorised representative shall file with the CoC any instructions received by way of physical or electronic means, from the financial creditor he represents, for voting in accordance therewith, to ensure that the appropriate voting instructions of the financial creditor he represents are correctly recorded by the IRP or RP.
As per his duties under this section, an Authorised Representative under IBC should act in the interest of the financial creditors that he represents to maintain the fairness and transparency of the insolvency process. As the Authorised Representative under IBChas voting rights, they influence the approval of the resolution plan and, therefore, the outcome of the resolution process. However, due to the lack of legislative support, the authorised representatives may face limitations to their abilities,
Challenges Faced by Authorised Representatives
Despite the simplicity of their responsibilities during the resolution process, the implementation of the authorised representatives may not be so in reality. The challenges faced by an authorised representative include:
- Homebuyers may not be aware of the IBC, regulations, and other relevant laws, and the background and expertise of the insolvency professional.
- The authorised representatives need to manage a large number of queries, emails, and phone calls from the buyers, hence consistent communication is necessary. This may become an issue as constantly replying to each query may be difficult.]
- There may be technical glitches that prevent creditors from voting on the e-voting portal.
- Appointing an authorised representative may be delayed which leads to an inadequate representation at the CoC.
- The authorised representative represents the financial creditor. When there are several financial creditors, balancing their interests becomes challenging for the authorised representative.
The Need for Greater Recognition
The IBC framework does not include comprehensive provisions for the authorised representatives of financial creditors. One of the main issues that arises is accountability for the actions of such individuals. Similar to other stakeholders, authorised representatives require regular reporting requirements and more stringent mechanisms for their actions. As communication is one of the skills that an authorised representative must have, utilising technology can make their role easier and streamline the resolution process.
Conclusion
To represent financial creditors in a simplified manner, an authorised representative is appointed to represent their concerns to the Committee of Creditors for the resolution under section 21(6A) of the IBC and Regulation 16A of the Regulations, 2016. As per the provisions of the IBC and the regulations, the authorised representatives collect voting instructions from the respective class of creditors, attend the meetings of the CoC, and vote on behalf of the financial creditors as per the instructions he receives. With the help of the authorised representative along with the financial creditors, the insolvency process is expedited. The main hindrance to their actions is limited statutory clarifications on authorised representatives. Their role and responsibilities can be resolved with amendments in the current insolvency system and judicial precedents.