Interim resolution professional

This role comes from the Insolvency and Bankruptcy Code, 2016. It applies when a creditor proves that a company has defaulted. A default means the company failed to pay money it owed. When that happens, the directors do not get to run the rescue.

Instead, an interim resolution professional (IRP) is appointed. The IRP takes charge of the company's affairs.

The IRP has two first jobs. One is to collect every claim against the company. The other is to form the committee of creditors. This committee then decides who runs the rest of the process. In the end, it also decides what happens to the company. The company may be restructured or taken over. Or it may be liquidated, which means shut down and its assets sold.

Section 14.2.6 lays out the sequence as the workbook describes it:

1. Who can start it. Any creditor — financial or operational — if the undisputed amount outstanding exceeds Rs 1,00,000. The company itself can initiate if it defaults on any payment. A financial creditor is one who receives consideration for the time value of money — in other words, earns interest on the amount outstanding.
2. Appointment. If satisfied that a default has occurred, the adjudicating authority appoints an IRP to manage the affairs of the company.
3. Management. On the IRP's appointment, the workbook says, the board shall be considered dissolved and all management personnel report to the IRP.
4. Claims and the committee. The IRP collates the amounts outstanding and forms the committee of creditors. Operational creditors can initiate proceedings but cannot be part of the committee.
5. Confirmation. The committee either confirms the IRP as the insolvency professional (IP) or appoints another person.
6. Timeline and outcome. Every proceeding should be completed within 180 days, though extensions have often been granted. The resolution may be restructuring, a takeover, or liquidation — and liquidation is preferred only if no other option is available.

IBBI regulates insolvency professionals (section 14.1.7). And under the insider trading regulations, admission of an insolvency application against a company and approval or rejection of its resolution plan are listed items of unpublished price sensitive information.

Illustrative. A listed textile company owes:

On the workbook's Rs 1,00,000 threshold, both could file. Suppose the bank's application is admitted on 1 June. The adjudicating authority appoints an IRP; the directors stop running the company; the IRP collects claims and forms the committee of creditors.

• The bank sits on the committee. The supplier does not, even though it too is owed money — operational creditors cannot be members.
• The committee confirms the IRP or appoints a new IP.
• 180 days from 1 June is 28 November. A plan approved by then might convert part of the bank's Rs 42 crore into equity and bring in a new owner; liquidation is the last resort.

For an analyst covering the stock, the admission itself was price-sensitive information that had to be disclosed.

On today's threshold (see the traps), the supplier's Rs 75 lakh claim would not be enough to file at all; the bank's Rs 42 crore would.

Chapter 14 (Legal and Regulatory Environment) covers the IBC in section 14.2.6 and IBBI in section 14.1.7. Expect questions on who can initiate, who appoints the IRP, whether operational creditors sit on the committee of creditors, the 180-day timeline and the order of preference between resolution and liquidation.

• Operational creditors can file but cannot sit on the committee of creditors. Financial creditors do both.
• The IRP is appointed by the adjudicating authority; the committee of creditors confirms or replaces it as the IP.
• Liquidation is the last resort, not the default outcome.
• Stale figure — the default threshold. The workbook states Rs 1,00,000. The government raised the minimum default for initiating corporate insolvency to Rs 1 crore in March 2020. Learn the workbook figure for the exam and know it has changed.
• Wording to watch. The workbook says the board "shall be considered as dissolved". The Code's own language is that the powers of the board are suspended and exercised by the IRP. If a question quotes the workbook, answer with the workbook.
• 180 days is the target, not a guarantee — the workbook itself notes extensions have often been granted.