Understand the concept of Authorised Representative (AR) in Corporate Insolvency Resolution Process (CIRP). Learn about the duties, criteria, and selection process for AR, ensuring effective representation of creditors in COC meetings. Explore the role of the Interim Resolution Professional (IRP) in ascertaining the class of creditors and facilitating the appointment of AR in compliance with the Insolvency and Bankruptcy Code, 2016.
In practical, it is difficult for the large number of members of each class to participate in the COC meetings. Therefore, the concept of AR was introduced into the CIRP so that representatives of various classes of creditors can put their mandate at the COC and thus take part in the process effectively.
It is duty of IRP to check whether AR is required or not in CIRP of Corporate Debtor.
It is first and foremost duty of IRP to check whether AR is required or not in CIRP of CD Regulation 4A the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Person) Regulation, 2016 (“CIRP Regulations”) [inserted vide Notification No. IBBI/2018-19/GN/REG031, dated 03.07.2018, w.e.f. 04.07.2018 and further amended through notifications dated August 07, 2020, and July 14, 2021] provides that on an examination of books of accounts and other relevant records of the CD, the IRP shall ascertain class (es) of creditors, if any. Regulation 4 of CIRP Regulations gives the power to IRP or RP to access books of accounts, records and other relevant documents and information, to the extent relevant for discharging his duties under the Code.
Meaning of Class of Creditors
As per Regulation-2(1)(aa) of IBBI (CIRP) Regulations, 2016 [inserted vide Notification No. IBBI/2018-19/GN/REG 031, dated 03.07.2018, w.e.f. 04.07.2018], “Class of Creditors” means a class with at least ten financial creditors under clause (b) of sub-section (6A) of section 21 and the expression, “creditors in a class” shall be construed accordingly.
The class of creditors does not mean but includes Home-Buyers or Real Estate Buyers or Deposit Holders. Class of creditors is a group of 10 or more financial creditors other than banks and financial institutions or trustees in financial securities or deposits.
Choice of AR where Class (es) of Creditors are ascertained by IRP.
It is necessary that the class of creditors must be able to choose their representative. But the creditors in reality are not aware of the qualities or capabilities or past records of any IP. Therefore, initial choice to choose AR has been given to IRP under CIRP Regulations. Regulation 4A of CIRP Regulations deals with the choice of AR. As per this regulation, the basic criteria required to be fulfilled for an eligible AR is same as an IRP/RP i.e., the person concerned must be registered with IBBI as an IP, must be independent of the CD and the RP and must not be subject to any disciplinary proceedings. He must have a valid Authorization for Assignment (AFA) from the concerned Insolvency Professional Agency (IPA). As per this regulation, the IRP shall identify three IP who fulfill the above criteria and shall obtain the consent of each IP identified to act as the AR of creditors in class in FORM AB of the Schedule.
It is to be noted that as per Regulation 6 of CIRP Regulations an IRP has to make a PA immediately on his appointment as IRP. Immediately means not later than three days from the date of his appointment. The PA shall be in FORM A of the Schedule. In the said PA, an offer shall be given to class of creditors to choose their AR out of three IP(s) identified under Regulation 4A. It is also to be noted that if the IRP has ascertained two different class of creditors i.e. Home Buyers and Deposit Holders under Regulation 4A(1), then the IRP shall identify three IP for each class of creditors.
As a good practice, it is necessary to provide a brief profile of the IPs chosen by the IRP to facilitate those who want to understand his background, education, and experience etc. This helps the creditors to make an informed decision.
Final selection of AR by the IRP
Regulation No. 16A(1) of CIRP Regulations provides that the IRP shall select the IP, who is the choice of the highest number of financial creditors in class in Form CA received under regulation 12(1) [i.e. on or before the last date of submission of claims as mentioned in PA], to act as the AR of the creditors of the respective class. It is to be noted that claims received after the last date of submission of claims as mentioned in PA shall not be consider for selection of AR.
Process of appointing AR
As per clause (b) sub-section (6A) of Section 21, where a financial debt is owed to a class of creditors exceeding the number as may be specified, other than the creditors covered under clause (a) or sub-section (6), the IRP shall make an application to the AA along with the list of all financial creditors, containing the name of an IP, other than the IRP, to act as their AR, who shall be appointed by the AA prior to the first meeting of the COC and such AR shall attend the meetings of the COC, and vote on behalf of each financial creditor in class to the extent of his voting share.
The IRP shall apply to the AA for appointment of AR selected within 2 days of the verifications of claims. Any delay in appointment of the AR for any class of creditors shall not affect the validity of any decision taken by COC.
For aforesaid purpose, the following abbreviations have been used: AA: Adjudicating Authority; AR: Authorised Representative; CIRP: Corporate Insolvency Resolution Process; COC: Committee of Creditors; IRP: Interim Resolution Professional; RP: Resolution Professional; IP: Insolvency Professional; PA: Public Announcement; Code: The Insolvency and Bankruptcy Code, 2016 and CD: Corporate Debtor.
Disclaimer: Nothing contained in this document is to be construed as a legal opinion or view of either of the author whatsoever and the content is to be used strictly for informational and educational purposes. While due care has been taken in preparing this article, certain mistakes and omissions may creep in. the author does not accept any liability for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon.