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CS Professional · Insolvency and Bankruptcy - Law and Practice

Resolution Strategies in Insolvency: Elective 7.5 Study Guide

Resolution Strategies covers how a corporate insolvency resolution process is run once the committee of creditors (CoC) is formed. You study who appoints and replaces the resolution professional, what the professional must do, how a resolution plan is invited and approved, and how the process continues. Solve questions in order: provision, facts, conclusion.

What this chapter covers

This chapter follows the process after the interim resolution professional (IRP) has constituted the CoC. The first step is the CoC's decision on who will act as resolution professional (RP). Then the RP runs the process, manages the company, and works towards a resolution plan. The chapter ends with how the process continues and what role the CoC plays throughout.

The core rules are in Sections 22, 23, 25 and 27 of the Insolvency and Bankruptcy Code, 2016. Section 22 deals with appointment. Section 23 deals with the RP conducting the process and managing the company. Section 25 lists the RP's duties. Section 27 deals with replacement of the RP by the CoC. The pre-packaged process has its own RP duties and powers in Section 54F, and a short comparison with the regular process is useful.

The chapter links to the rest of Elective 7.5. It builds on admission and the IRP's role, which come before it. It leads into resolution plan approval, liquidation and the other processes that come after it. If you are clear here, the later chapters are easier because you know who is acting and with what authority at each stage.

Papers are written and case-based, and this chapter suits that format. A typical question gives you a CoC vote, a replacement proposal or a lapse in the process, and asks what the Code allows. Exact numbers and sequences (seven days, 66 per cent, ten days, Board confirmation) decide whether your conclusion is right. Because the elective is open book, you can find the section quickly, but you still need to apply it to the facts and write a clean conclusion in the time given.

Resolution Strategies (Elective 7.5): topics in the order to study them

  1. 1Appointment of Resolution Professional (Section 22)Start here because everything else depends on who the RP is and how the CoC decides, so learn the seven-day meeting, the 66 per cent vote and the Board confirmation steps first.
  2. 2Duties of Resolution Professional (Section 23)Next, learn what the RP does: Section 23 gives the conduct and management role, and Section 25 lists the specific duties, so read them together.
  3. 3Resolution Strategies and Resolution PlanOnce you know who runs the process, study the goal it works towards: inviting resolution plans, presenting them to the CoC and the options available for resolving the company.
  4. 4Continuation of Process and Committee of Creditors RoleFinish with how the process continues, including replacement of the RP under Section 27, and how the CoC's powers tie the earlier topics together.

How to prepare Resolution Strategies (Elective 7.5)

This chapter is mostly sections with exact conditions. Prepare it so that you can state a rule, test it against facts and conclude, without losing marks on small details.

  1. Read Sections 22, 23, 25 and 27 in the Code text itself, and mark every number, time limit and vote requirement.
  2. Draw a simple flow for Section 22: first CoC meeting, vote, consent in the specified form, application to the Adjudicating Authority, Board confirmation, and the ten-day fallback.
  3. Make a two-column table in your notes, outside the exam, comparing Section 22 appointment with Section 27 replacement, so you see where they match and where they differ.
  4. List the RP's duties under Section 25 in your own words, and add the Section 23 proviso on continuing to manage the company until an order under the Code is passed.
  5. Read the resolution plan material and note who invites plans, on what criteria, and who presents them to the CoC.
  6. Write three or four case answers in the format of provision, analysis of facts, conclusion, and check each answer for the exact section and condition.
  7. Tab the key sections in your open-book copy so that you can locate them within seconds.

Common mistakes in Resolution Strategies (Elective 7.5)

  • Treating Section 23 as the full list of the RP's duties.

    Fix: Remember that Section 23 sets the RP's role in conducting the process and managing operations. The detailed list of duties is in Section 25, so quote both where relevant.

  • Writing the wrong vote threshold or the old figure.

    Fix: Use not less than 66 per cent of the voting share of financial creditors for Section 22, and 66 per cent of voting shares for Section 27.

  • Saying the Adjudicating Authority appoints a new RP straight away.

    Fix: Always write the sequence: CoC resolution, application, name sent to the Board, confirmation, then appointment. Add the ten-day fallback where the Board is silent.

  • Thinking the RP's role ends when the process period expires.

    Fix: State that the RP continues to manage the company until the Adjudicating Authority passes an order approving the plan or appointing a liquidator.

  • Mixing up the regular process with the pre-packaged process.

    Fix: Label every answer with the process it belongs to. Note that Section 54F has its own duties, such as confirming the list of claims submitted by the corporate debtor.

  • Giving a conclusion without applying the facts.

    Fix: In every case answer, quote the rule, apply it to the dates, votes and parties given, and then state a clear conclusion.

Last-day revision: Resolution Strategies (Elective 7.5)

  • The first CoC meeting must be held within seven days of the CoC's constitution (Section 22).
  • In that meeting the CoC can continue the IRP as RP or replace the IRP, by a vote of not less than 66 per cent of the voting share of the financial creditors.
  • If the IRP is continued, the CoC communicates its decision to the IRP, the corporate debtor and the Adjudicating Authority, subject to the IRP's written consent in the specified form.
  • If the IRP is to be replaced, the CoC applies to the Adjudicating Authority along with the proposed RP's written consent in the specified form.
  • The Adjudicating Authority forwards the proposed name to the Board and appoints only after the Board confirms.
  • If the Board does not confirm within ten days, the IRP continues as RP until the Board confirms the proposed RP.
  • The RP conducts the entire process and manages the operations of the corporate debtor (Section 23), subject to Section 27.
  • The RP continues to manage the company after the process period ends, until an order approving the plan or appointing a liquidator is passed.
  • Section 25 duties include preserving and protecting assets, taking custody of assets and records, keeping an updated list of claims, convening CoC meetings and preparing the information memorandum.
  • The RP raises interim finances only with CoC approval, and invites prospective resolution applicants on criteria approved by the CoC.
  • The RP presents all resolution plans at CoC meetings and files applications for avoidance of transactions.
  • Under Section 27, the CoC may replace an RP at any time by a vote of 66 per cent of voting shares, with the proposed RP's written consent.

Resolution Strategies (Elective 7.5) practice questions

Resolution Strategies (Elective 7.5) in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Resolution Strategies (Elective 7.5): frequently asked questions

What vote does the CoC need to appoint or replace the RP?

Under Section 22, the CoC needs a majority of not less than 66 per cent of the voting share of the financial creditors to continue the IRP as RP or replace the IRP. Under Section 27, replacing an RP needs a vote of 66 per cent of voting shares, with the proposed RP's written consent.

What happens if the Board does not confirm the proposed RP in time?

If the Board does not confirm the name within ten days of receiving it, the Adjudicating Authority directs the IRP to continue as RP. The IRP continues until the Board confirms the proposed RP's appointment.

Are Section 23 and Section 25 the same topic?

No. Section 23 says the RP conducts the whole process and manages the company's operations. Section 25 lists specific duties such as preserving assets, keeping the claims list and presenting resolution plans. Read them together for any question on the RP's role.

Does the RP stop managing the company when the process period ends?

No. The proviso to Section 23(1) says the RP continues to manage the company until the Adjudicating Authority passes an order approving a resolution plan or appointing a liquidator.

Can I use the Code in the exam for this chapter?

Elective papers are open book, so you can refer to the text. You still need to apply the section to the facts quickly, so tab the key sections and practise written answers beforehand.