Advising And Assisting Resolution Professionals In Resolution Process Management
What Do You Understand by Term ‘Resolution of Financial Firms’?
The resolution of a financial firm can be defined as a typical category of immediate inability to pay debts ruining the interest of a few creditors instantly and mercilessly. On the other hand, it provides the other (i.e. the bank depositors, a new as well as a jubilant beginning. Resolution is supposed to be carried out before contagion sets into the business and the various parties (like customers, competitors, traders etc.) associated with the business also break down in panic or due to lack of improper risk management strategies. This code is known to provide specific resolution mechanism in order to handle bankruptcy circumstances in banks, insurance companies, and other financial institutions. This Bill received a green go in the Parliament on June 14, 2017.
Resolution Corporation’s Establishment and Its Operations
The draft Bill visions the establishment of a Resolution Corporation with a description from financial sector regulators, like, IRDAI, RBI, SEBI and PFRDA, delegates from the Government (i.e. Central Government) as well as two independent members. There are three major functions of the Resolution Corporation, namely; (a) assessing risks and preparing for the failure of covered service providers (CSPs), (b) resolving failed CSPs with the help of a variety of tools and (c) managing funds for deposit insurance, resolution and administration.
Funds and Accounts
A Resolution Corporation ought to have three kinds of funds:
Systemically Important Financial Institutions (“SIFIs”)
The Government (i.e. the Central Government), in deliberation with the appropriate sectoral regulator may entitle certain categories of financial institutions as Systemically Important Financial Institutions. Given their consequences for the economy, the Bill envisages a few other supplementary powers in respect of these Systemically Important Financial Institutions.
After the proclamation of the Bill, the Deposit Insurance as well as Credit Guarantee Corporation would be dispersed and all its functions will be taken over by the Resolution Corporation.
Assessment: Risk v/s Viability
The Resolution Corporation along with the Appropriate Regulator would determine the objective criteria for the classification of covered service providers into five categories, namely
The categorization of a covered service provider as ‘low’, ‘moderate’ and ‘material’ can only be done by the allocated regulator. The categorization into ‘imminent’ can be done either by the Resolution Corporation or the Appropriate Regulator.
The powers of the Appropriate Regulator at the ‘material’ stage involves preventing the covered service provider from conducting a number of activities, including payment or declaration of dividends, accepting funds and acquiring any interest in any other business. The powers of the Resolution Corporation are restricted until the covered service provider reaches the ‘imminent ‘stage.
The categorization to be at ‘critical’ risk to growth by the Appropriate Regulator or the Resolution Corporation shall only be through a written order that needs to be published in a specified manner.
At this point, the Resolution Corporation shall be chosen to manage the affairs of the covered service provider.
Until the conclusion of the resolution, there will be a stay on legal actions and proceedings.
There will also be a stay on both the payment or acceptance of deposits to the depositors of the covered service provider in a particular manner provided through a written order.
The Insolvency and Bankruptcy Code, 2016 has been brought into the picture with the sole motive of making available the credit more transparent by boosting the value of the assets in a time-bound fashion. It builds up the trust in the judicial mechanism by preventing the immoral and corrupt debtors from dodging the paying back of their debts by taking the aid of insolvency.
The Insolvency and Bankruptcy Board is the supervisory power entrusted with the obligation to guarantee the efficient and productive exercise of the essentials laid down under the Insolvency and Bankruptcy Code.
Insolvency Information Utilities Governance
An Information Utility stocks financial information that serves to set up delinquency as well as validate claims rapidly as well as promptly and thereby aid in the completion of transactions under Insolvency and Bankruptcy Code. In order to allow the Insolvency and Bankruptcy Board the control of Information Utility as per the Insolvency and Bankruptcy Code, the Insolvency and Bankruptcy Board of India (Information Utilities) Regulations, 2017 were brought forth. The Information Utility Regulations provide for qualification norms, technical specifications, guidelines, for the proper conduct of core services and other services by Information Utilities. Spelling out the responsibilities and assignments to be carried out under the law, the Information Utility Regulations assists in confirmation and verification of information to be stored with the Information Utility, data integrity and security, registration of users, porting of information, interoperability among Information Utilities grievance redressal mechanism, etc.
Alteration of Information Utilities Regulations
For the objective of better application and implementation of the principles of the Information Utilities Regulations as per the terms of Insolvency and Bankruptcy Code, the Insolvency and Bankruptcy Board of India (Information Utilities) (Second Amendment) Regulations, 2018 were circulated on October 11 in the year 2018. Some of the characteristics of the Amendment Regulations are listed below:
Regulation 9 – Composition of the Governing Board.
Regulation 9A – MD (Managing Director)
Regulation 9B. – Compliance
Agreement to the amended regulations 9 and 9A are required to be made within one year from the date of initiation.
The Information Utility ecosystems, in turn, facilitates the speedy disposal of insolvency resolution process to avoid denial of justice to bonafide creditors which may be threatened due to the evident inability of the debtor. The adjustments and alterations help in the setting up of an infrastructure ascertaining obedience to the law of the land.
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This person would be eligible to be selected for the corporate insolvency resolution process of a corporate debtor in case he as well as his partners and directors of the insolvency professional entity of which he is related.
This can be done immediately on his nomination as an interim resolution professional.
Any individual demanding to be an operational creditor, other than an employee of the corporate debtor ought to submit proof of claim to the interim resolution professional either in person or by post.