Resolution professionals have a limited yet crucial role in pre-pack scheme

The role of a resolution professional (RP) in the new pre-pack scheme has been limited to that of an overseer rather than the one running the show as is the case in the corporate insolvency resolution process (CIRP) under the Insolvency and Bankruptcy Code (IBC).

According to the pre-pack framework released by the Ministry of Corporate Affairs (MCA), the the management of the corporate debtor (CD) does not shift to an Interim Resolution Professional (IRP) and then to the RP.

The RP does not have the responsibility of running the business of the CD as a going concern in a pre-pack. He does not take possession and custody of assets of the CD and is not responsible for protecting and preserving their value. He does not exercise the powers of the Board of Directors; nor is he responsible for complying with all the applicable laws on behalf of the corporate debtor.

However, the panel which drafted the framework maintains that the resolution professional still has a critical responsibility of oversight of the process to ensure that no stakeholder is short-changed, and all dealings are fair and transparent.

Crucial role to play

“His presence instills confidence of the stakeholders who trust him for his professionalism, independence, and integrity. He guides the CD in all tasks prior to initiation and assists the stakeholders in the formulation and approval of a resolution plan,” says the panel.

The panel, therefore, recommends that the RP should ensure transparency and fairness of the process, safeguard the interests of stakeholders, business, and the public, and ensure compliances with the law as regards the process.

While the business is run by the existing management, the resolution professional should make sure that the corporate debtor is managed during the process in a manner which is not detrimental to the interest of the creditors.

“He should be entitled to attend the meetings of the Board of Directors of the CD as an observer, without any voting rights. He must act independent of the CD and the creditors, in the best interest of all stakeholders, while assisting the CD and creditors in negotiating and drafting the resolution plan. He should be responsible for collating and verifying the list of claims against the corporate debtor, constituting the CoC, and inviting resolution plans from prospective resolution applicants (RAs), wherever required, in accordance with the process laid down hereafter. He may file applications before the adjudicating authority (AA) as regards issues relating to conduct of the process, and not relating to the conduct of business of the CD,” lays down the framework .

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The panel also considered the role of an insolvency practitioner during the pre-admission stage in negotiations and compliances. After deliberations, it was concluded that the role of an RP in pre-admission stage and the manner of appointment of RP need not be defined and codified in the interest of flexibility. The stakeholders should have the liberty to use an IP to help them in tasks prior to formal process. The panel, therefore, recommends that the formal role of RP may begin with admission of the pre-pack, as it happens with CIRP.