Status as on 22.4.19
Post-admission of an insolvency application
According to section 17 of Insolvency and Bankruptcy Code, 2016 (IBC), from the date of appointment of interim resolution professional
- the management of the affairs of the corporate debtor shall vest in the interim resolution professional (IBC);
- the powers of the board of directors of the corporate debtor shall stand suspended and be exercised by the IRP.
Although, once the application for the initiation for insolvency is admitted the board of directors loses the control over of the company of the corporate debtor but it does not mean that the board of directors shall not be present at the meetings conducted by a committee of creditors.
Duty of Resolution Professional
As per section 24(3) (b) of IBC, the resolution professional shall give notice of the meeting of the committee of creditors to members of the suspended board of directors which implies that meeting of creditors shall be commenced only when the board of directors is notified about the meeting.
Resolution binding upon the Suspended Directors
According to section 31(1) of IBC, the resolution plan approved by the committee of creditors and Adjudicating authority shall be binding upon the corporate debtor and its employees, members, creditors, guarantors and other stakeholders involved in the resolution plan. Consequently when such a high stake of the directors, as well as the corporate debtor, is involved then the ex-board of directors should have been aware of the resolution plan and have say in it.
Participation of directors in COC beyond merely providing the financial status of the corporate debtor
Generally, the participation of directors into the COC was mandated to provide information regarding the financial status of the corporate debtor. But Hon’ble Supreme Court in Vijay Kumar Jain vs. Standard Chartered Bank and others held that members of the suspended board of directors are not permitted to participate in COC meetings only for the purpose of giving information regarding the financial status of the debtor but beyond that.
The ex-directors and guarantors of the corporate debtor who are included as a financial creditor into the COC are bound by the resolution plan, thus interest in the terms of the resolution plan.
Relevant Documents to be furnished
Supreme Court in Vijay Kumar Jain Vs. Standard Chartered Bank and others laid down that the notice of the meeting of COC shall be circulated to every creditor with the agenda of the meeting along with the whole set of relevant documents for the matters to be discussed in the meeting.
As per regulation 7(2)(h) of the Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016 the Resolution professional shall take an undertaking from the corporate debtor to retain the information or discussion of the meeting as confidential.
In the light of above provisions and decision laid down by the Hon’ble Supreme Court, it has become clear that the ex-directors of the corporate debtor shall be notified about the meeting of the committee of creditors and they are entitled to review the resolution plan submitted before the resolution professional. Apart from this, the former directors of the corporate debtor shall not merely provide the financial status of the corporate debtor but more than that so that they are aware of the terms to which they are bound.