IBC Laws Blog

Insolvency Professional: A SWOT Analysis – By Paridhi Agrawal

The process of resolving the issues faced by JPCL proved to be quite arduous and intricate. The task at hand was to find a solution for a hydro power asset that was only halfway completed, but required a significant amount of funds to be finished. This had to be accomplished within a span of approximately six months as the Resolution Professional (RP), and then handed over within 2.5 months of receiving approval from the National Company Law Tribunal (NCLT), despite the challenges posed by the Covid-19 pandemic. However, the satisfaction gained from successfully completing this task was immense. By utilizing the IBC process, a power plant that was on the brink of closure was successfully salvaged. This achievement will undoubtedly benefit the country’s economy by providing a fully operational hydro power plant within the next two to three years. Additionally, numerous jobs were saved, and more employment opportunities will be generated in the years to come. Furthermore, the lenders and other operational creditors were able to reach a settlement, which would have otherwise resulted in a complete write-off. Thus, the resolution process of Jalpower Corporation Limited exemplifies the primary objective of the IBC, which is to expedite the resolution of insolvent or bankrupt businesses, preserve bankrupt entities, and facilitate the recovery of loans.

Insolvency Professional: A SWOT Analysis

Paridhi Agrawal
Final Year Student, B.A. LL.B. (Hons.), Amity University


The Insolvency and Bankruptcy Act 2016 (IBC) is the legislation made by the central govt. for the reorganization and resolution of insolvency of distressed persons (companies, trusts, partnerships and sole traders and individuals).

The purpose of restructuring and resolution is to maximize the value of individuals assets to promote entrepreneurship, improve access to credit and balance the interests of all stakeholders. The resolution process begins with the acceptance of a request submitted by a legal stakeholder in case of non-compliance with the threshold amount. The code provides for a quiet period during which stakeholders work to resolve the crisis without fear of recovery or enforcement action.

In case of corporate insolvency, creditors assess the viability of the debtor (CD) of the company and try to save it through a resolution plan. The Corporate Insolvency Resolution Process (CIRP) ends either with the approval of a resolution plan aimed at restoring the CD, or with an order to start its liquidation. In the event of individual insolvency, debtors and creditors negotiate a repayment plan, which is carried out under the supervision of a resolution professional. Resolution proceedings, which involve the sale of the debtor’s assets, are a result of the insolvency resolution process. The Code foresees a new initial process for the release of those individuals who have extremely limited arrears and the possibilities of collection are very small compared to the effort required.

The Code provides an ecosystem of four pillars to help stakeholders resolve their stress.

  1. A group of regulated persons, insolvency professionals [IP], who play a crucial role in the efficient operation of insolvency, liquidation or bankruptcy processes.
  2. Information Utility (IU), who store debtors financial information in an electronic database and eliminate delays and disputes during the settlement process.
  3. Adjudicating Authority (AA), namely the National Company Law Tribunal (NCLT) for corporate insolvency cases and the Debt Recovery Tribunal (DRT) for individual insolvency cases.
  4. Regulatory body namely the Insolvency and Bankruptcy Board of India (IBBI). As a unique regulator, it regulates the profession and It controls IP, Insolvency Professional Agency [IPA], Insolvency Professional Entity [IPE] and It establishes and enforces rules for processes such as CIRP, Pre-Packaged insolvency resolution process.

SWOT Principle for the detailed Analysis of Insolvency Professionals 

The principle of SWOT is used with an aim to deeply understand the various Strengths, Weaknesses, Opportunities and Threats faced so that they can be resolved and recommendations can be made. This paper will from foreside. aim to deeply analyse the IP with the use of SWOT principles.

Strengths of an IP

 The IP’s under the IBC are entrusted with the responsibility of taking care of the whole of insolvency resolution process and to make the Insolvency Resolution Plan in a manner which discharges the Corporate debtor [CD] from its liability by selling his assets and aids him to fulfil creditors debt from such sale in a manner that the CD completely discharges from his liability.

A. Knowledge of Law: The 1st and the foremost strength of an IP is his mind, an IP is a professional who is well-versed in Insolvency Law, he knows all the rules and regulations enacted by Insolvency and Bankruptcy board of India and has a comprehensive understanding of IBC. An IP is entrusted to work according to the legislation made by the legislature and is responsible for the discharge of creditors claims and debtors liability.

Use of this ability:

  1. Understanding the financial position: IP’s analyse the financial position of an insolvent company. To determine the root causes of financial difficulties and
  2. Preparation of resolution plans: Development of feasible resolution plans for business revival. Working with stakeholders to gather input to develop effective plans.
  3. Legal and Regulatory Compliance: Ensuring compliance with the IBC’s legal and regulatory framework. Navigating Complex Legal Proceedings and Claims.
  4. Negotiations and communication: Negotiations with creditors, shareholders and other stakeholders to reach an agreement on a resolution plan. IP’s communicate transparently and effectively with all parties.
  5. Operational supervision: Supervision of the day-to-day activities of an insolvent company during the resolution Making operational decisions to keep the business afloat during CIRP.
  6. Financial management: Management of available funds during the settlement Rational allocation of resources to meet the immediate and long-term needs of the company.
  7. Dispute resolution: Resolution of disputes between creditors, stakeholders and other interest groups. Balance of the interests of different interest groups for fair income
  8. Due Diligence: Conducting thorough due diligence to assess the feasibility of resolution Identifying potential risks and providing mitigation strategies.
  9. Representation in court: Representation of an insolvent company in court proceedings. Submission of updates and reports to National Company Law Tribunal (NCLT).
  10. Ethical considerations: Maintain professional ethics and integrity throughout the process. Balances the interests of various stakeholders according to legal and ethical

B. Negotiation Skills: IP’s are expected to establish strong interpersonal relationships with stakeholders of the company, including but not limited to shareholders, creditors etc. They hold the ability to derive a conclusion that is made after getting consensus of opinions from different groups having contradictory or different interest.

Use of this ability :

  1. Clear communication: Effective negotiations start with clear and transparent communication. The IP communicates to stakeholders the financial position of the company, the reasons for insolvency and the proposed resolution process.
  2. Debt Restructuring: Negotiations with creditors to restructure the company and debts, with repayment schedules, interest, or debt-to-equity conversions.
  3. Communicating with Resolution Applicants: Discussions with potential resolution Professionals to ensure they understand the business, the proposed resolution plan and any other conditions attached with it.
  4. Stakeholder Consensus: Building an agreement between different stakeholders with conflicting interests. Negotiations to find common ground and resolve concerns, ultimately achieving approval of the proposed resolution plan.
  5. Court: Negotiating legal proceedings, presenting arguments and negotiating settlements to resolve disputes or disputes that may arise during the insolvency
  6. Negotiations with suppliers and employees: making decisions about the continuation of operations and negotiating with suppliers and employees to ensure a smooth process and minimize disruption.
  7. Regulatory compliance: Negotiation with regulatory authorities to ensure compliance with legislation and regulatory requirements during the insolvency resolution
  8. Asset Value Maximization: Asset sales are negotiated to maximize their value and distribute the proceeds among stakeholders.
  9. Liquidation Negotiations: If no resolution is possible, negotiate the terms for an appropriate liquidation process.
  10. Conflict resolution: Identifying and resolving conflicts between stakeholders through negotiation, mediation, or alternative dispute resolution methods.

C. Flexible Approach: IP’s are considered as Adaptable, they have the ability to adapt to changing circumstances and situations during the Insolvency Process. Successful IP’s have willingness to learn new skills, Latest trends, Legal amendments for an effective resolution process.

Use of this Flexible Approach:

  1. Change in Market conditions: Market conditions can fluctuate or change, which affects the financial situation of Adaptive IP can assess and respond to changes in the financial environment and ensure that the insolvency resolution strategy remains relevant and effective.
  2. IPs often operate in different industries and with different business Flexibility in understanding and adapting to the specific needs and challenges of different industries is essential to tailor insolvency resolution strategies to each unique case.
  3. Changes in law and regulations: Insolvency laws and regulations may change, affecting the resolution process. Adaptive IP keeps abreast of legislative developments and adapts strategies to meet the latest regulatory requirements, ensuring that the resolution process remains legally sound.
  4. Negotiation and Communication: Effective communication and negotiation skills are essential for an IP. Flexibility in communication styles and negotiation methods allows the professional to navigate the various interests and perspectives of stakeholders, which facilitates consensus building in the resolution process.
  5. Financial and operational challenges: Insolvent companies may experience unexpected financial or operational Adaptive IP can quickly assess and resolve these issues and make necessary changes to the resolution plan to improve the chances of successful implementation of the resolution plan.
  6. Technological integration: There are more and more technical solutions to increase efficiency in the insolvency Adaptive IP can use new technologies to streamline processes, streamline data analysis and improve the overall efficiency of the insolvency resolution process.

D. Leadership qualities: IP who is a part of a team have effective leadership and collaborative skills to coordinate efforts to achieve a successful solution, he has the ability to inspire confidence in stakeholders and team.

Use of this ability

  1. Provides a stratergic vision: Leaders have a strategic vision that transcends immediate challenges. In an insolvency situation, a manager can develop and communicate a clear vision for the future of the struggling This vision helps guide the resolution process and inspires confidence among stakeholders in the long-term viability of the company.
  2. Ethical decision making: Leadership skills are closely related to ethical decision making. In insolvency proceedings where ethical considerations are paramount, An insolvency resolution professional ensures that decisions are made according to legal and ethical This increases the confidence of stakeholders and increases the credibility of the insolvency professional.
  3. Building and managing a team: Insolvency resolution often involves assembling a team of professionals with diverse skills. An Insolvency professional appointed for the said purpose can effectively build and manage this team, ensuring that each member contributes to the overall success of the resolution process. Strong leadership fosters a collaborative and motivated team environment.
  4. Strategic Decision Making: Effective leaders have strong strategic decision making skills. In the insolvency process, IP companies often have to make critical decisions that can have a big impact on the bottom line. Management skills allow them to analyze complex situations, consider different options and make informed decisions in line with the overall crisis resolution strategy.

Weaknesses of an Insolvency professional

While possessing specialized expertise in handling insolvency cases, similar to any profession, they encounter potential vulnerabilities or obstacles. A few of these vulnerabilities encompass:

A. Legal and Regulatory Complexity: Insolvency proceedings frequently encounter intricate legal and regulatory Staying abreast of alterations in insolvency legislation and maneuvering within the legal milieu can be arduous. Neglecting the regulations may engender legal disputes and problems.

How to curb this weakness:

  1. Good Legal Research skills : The intricacy and rapid alterations associated with insolvency laws and regulations are frequently encountered. keeping up with these modifications can pose a challenge for IP’s, potentially resulting in non-compliance concerns. Additionally, swift changes may engender uncertainties and complexities in the accurate interpretation and application of the law. Therefore, The insolvency resolution professionals shall be good in the skills of legal research and in making analysis from them , this is an essential skill in order to curb this weakness.
  2. Bridging that Gaps between Global Insolvency laws: Inconsistencies can be noticed among different jurisdictions in relation to the processes pertaining to insolvency. Each jurisdiction possesses a unique collection of laws and regulations. The convergence of these diverse legal structures can present considerable challenges, as conflicting requirements may surface. Consequently, difficulties in compliance and delays in the resolution process may Therefore, gaps between the international insolvency laws shall be removed and an integrated framework of laws shall be made this can be done by signing treaties among different countries, or by joining conventions etc.
  3. Thorough Understanding of Data Protection and Privacy Laws: Insolvency procedures involve the management of delicate fiscal and personal It is crucial to abide by legislation concerning the protection and confidentiality of information. Non-compliance with these regulations may lead to legal repercussions and besmirch the standing of the insolvency expert and the entire process. Therefore IP’s shall be taught about these laws in detail and questions regarding the same laws shall also hold high weightage in the Limited Insolvency Examination. Strict adherence to legal procedures and regulatory requirements is Insolvency proceedings may intersect with various other areas of law, such as labour laws, environmental laws, and tax laws. Conflicts between insolvency laws and other legal provisions can complicate the resolution process and may necessitate careful coordination to avoid legal issues.

B. Dependency on Information: The effectiveness of an insolvency professional greatly depends on the precision and thoroughness of the data presented by the debtor and other parties involved. Erroneous or inadequate information obstructs the professional’s capacity to make judicious judgments.

How to curb this weakness:

  1. Verification of information: The Resolution professional in order to authenticate the information provided by the stakeholders of the corporate debtor independently verify the same, This can be done by thoroughly studying datas of CD through various sources and comparing them. The process may include careful examination of Contracts, Bank statements and other type of relevant documents which are considered to be 100% reliable and accurate.
  2. Take aid of Regulatory Authorities: The Insolvency professional in cases where the relevant documents are not being immediately made available to him or in cases where he is denied of access to such documents by any Governmental or private authority shall take help of the regulatory authorities in order to derive such information, This can be done by the regulators through issuing summons, orders etc.
  3. Taking assistance of Forensic experts: In situations where suspicions of fraud or intentional misrepresentation arise, the insolvency professional shall consider to derive assistance of forensic experts to conduct a comprehensive investigation into financial records and transactions. The conclusions derived from the analyses performed by these experts can provide invaluable insights and evidentiary

C. Hostile working environment and Personal Attacks: Within emotionally charged situations, insolvency practitioners may encounter hostility and personal attacks from debtors, creditors, or other parties affected by the insolvency. This can impede the insolvency practitioner’s ability to carry out their duties objectively and potentially foster a hostile work environment.

How to curb this Problem:

  1. Dealing with Personal Distress: The nature of insolvency work can expose professionals to distressing situations, such as layoffs, business closures, or personal financial hardships faced by Managing personal emotions and maintaining a professional demeanour can prove challenging in such circumstances, therefore, IP’s shall be trained to deal effectively with their personal distress.
  2. Emotional Intelligence Training: Developing emotional intelligence can assist IP’s in navigating emotionally charged situations, managing their own emotions, and comprehending the emotions of others.
  3. Effective Communication Skills: Enhancing communication skills can aid insolvency practitioners in clearly conveying information, managing conflicts, and fostering positive relationships with stakeholders.
  4. Stress Management and Well-being Programs: Implementing initiatives for stress management and well-being can support IP’s in maintaining their mental and emotional health during challenging situations.
  5. Collaboration and Team Building: Cultivating strong professional relationships and fostering collaboration with other stakeholders can contribute to a more cooperative and effective resolution process.

D. Adherence to ethical standards: IPs are obligated to conform to established ethical principles and Instances of ethical quandaries may emerge in circumstances where there is a clash between legal mandates and moral duties, or in instances where there is a compulsion to deviate from moral standards.

To tackle these challenges, IPs can employ the following strategies:

  1. Training in Ethics: Continuous training in ethical principles and best practices aids IPs in navigating complex situations and making decisions that align with ethical standards.
  2. Seeking consultation from legal and ethical advisors can yield valuable perspectives when confronted with challenging choices. The expertise and counsel of professionals guarantee that decisions adhere to legal mandates and ethical deliberations.
  3. Clear Communication: Transparent communication with stakeholders regarding ethical considerations, potential conflicts, and the rationale behind decision-making helps build trust and manage expectations.
  4. Regular Review of Ethics Policy: IPs must periodically review and update their ethics policies and procedures to ensure consistency with evolving legal standards and industry best

By addressing ethical issues with transparency, honesty, and integrity, IPs can enhance their credibility and contribute to the successful resolution of insolvency proceedings.

It is important to note that many of these disadvantages can be mitigated through career progression, adherence to ethical principles and effective communication with stakeholders. In addition, the supervision and regulation of the activities of IP’s is among the main tasks of the regulatory authorities, which aim to ensure impartial and transparent procedures that ensure impartiality and transparency.

Opportunities for an Insolvency Professional

1. Digitalisation in the field: There is a significant scope of integration of the present systems starting from filing of insolvency applications based on record of defaults generated by the IU, online filing of replies and template-based forms, communication of IPs with the stakeholders, reporting of the process outcomes to the IBBI, inter-creditor interactions, etc. IPs face great difficulty in obtaining records from the promoters of the corporate debtor (CD) and there are disputes raised by both parties about what information has been submitted and what is still pending to be submitted. If the information is submitted on a single platform. there will be a single source of truth which can be viewed by all parties having access to that information. The platform can facilitate interaction between representatives of class of creditors (like home buyers) and other creditors and allow creditors to watch the progress of their case. Predictive coding can also be employed to conduct a review of the company’s books and records to search for Technology assisted review could retrieve the relevant documents by searching through a large number of documents.

If the interactions, as mentioned above, are conducted on an integrated platform, the information can flow efficiently and quickly throughout the system, which will further help the NCLT benches in quickly establishing the facts and thereby curtailing process delays. If information is submitted in a timely manner, monitoring would be better and NCLT can quickly decide about the alleged violation of compliances. In fact, all relevant regulators can view the nature of cooperation being extended.

2. Insolvency related to real estate sector: The Amitabh Kant Committee suggested few of the amendments to be made in the IBC,2016. The insolvency and Bankruptcy board of India had published a Discussion Paper on the same line of those suggestions and had suggested amendments in the CIRP and Liquidation Regulations. The main points in the discussion paper were :-

  1. It suggested to impose on the Insolvency Resolution Professional or the Resolution Professional the responsibility of verifying that any real estate projects of the corporate debtor shall be registered under the RERA Act.
  2. It also suggested to impose on the Resolution professional, in the case when the ongoing registration is about to expire, the responsibility to renew its RERA Registration.
  3. It also imposes the responsibility on the Insolvency Resolution Professional or the resolution professional to ensure that the individual bank accounts should be operated for each real estate project which is owned by the CD who is undergoing resolution process under the 2016 Code.
  4. It also outs an obligation on the Interim Resolution Professional or the Resolution Professional to have the authority to transfer the possession or the ownership of any apartment, plot or building to allottees.
  5. It also suggested that the insolvency resolution professional or the interim resolution profession shall be imposed with the responsibility for ensuring the invitation of separate resolution plans for each individual or group resolution projects.

Hence, more responsibilities are being suggested to be entrusted on the hands of Insolvency professional.

Threats to Insolvency Professionals

A. Financial risks: Financial risks can be encountered by IP’s, particularly in cases where they are incapable of recuperating an adequate amount of funds from the insolvent entity’s assets to satisfy their fees and expenses.

How to resolve this threat-:

  1. Transparent Fee Structure: Clearly outline the fee structure at the beginning of the engagement. Transparency about the costs involved in the insolvency process helps manage expectations and reduces the risk of disputes later on.
  2. Cost Control Measures: The implementation of cost control measures is essential in order to effectively manage It is imperative for IP’s to exercise caution when it comes to their expenditures and actively seek out avenues to optimize costs while ensuring that the quality of their services remains uncompromised.
  3. Asset Realization Strategies: Develop effective strategies to maximize asset This may include identifying valuable assets, negotiating with creditors and seeking alternative solutions to improve overall collection.
  4. Due Diligence: Do a thorough due diligence before receiving an insolvency assignment. Assess the distressed company’s financial condition, potential challenges and likelihood of successful asset recovery. This preliminary analysis can help manage expectations and risks.
  5. Diversification of services: The IP’s shall diversify the range of services they provide. This may include consulting services, financial advice or related fields. A diverse range of services helps to balance income streams and reduce dependence on a single source.

B. Credibility and reputation: Maintaining a good reputation is essential for IP’s . If stakeholders perceive their actions as biased, unethical or inappropriate, this can damage their credibility and make it difficult to secure future commitments.

This threat can be resolved by :-

  1. Adhere to ethical standards: Demonstrate adherence to high ethical standards in all aspects of your work. Adherence to ethical guidelines ensures fairness, impartiality and transparency in the insolvency process.
  2. Communication and Transparency: An IP shall communicate openly and transparently with all stakeholders, including creditors, debtors, employees and regulators. Regular updates and explanations of the basis for decisions increase
  3. Timely reporting: An insolvency professional shall ensure timely and accurate reporting of insolvency Timely submission of required reports and documents demonstrates professionalism and credibility.
  4. Professional Conduct: Maintain professional conduct in all interactions. Professionalism extends to communication, appearance and behavior in meetings, negotiations and trials.
  5. Community involvement: Contact your local community and relevant industry groups. Attending professional associations, conferences and community events can help create a positive presence and improve your reputation.

C. Global economic factors: An economic downturn or global financial crisis can affect the success of insolvency. A challenging economic environment can reduce the chances of recovering assets.

Ways to mitigate this threat :-

  1. Adaptability and flexibility: Increase your adaptability and flexibility in case of insolvency. Economic downturns can require innovative solutions, and openness to new approaches can improve the chances of successful outcomes.
  2. Build relationships with financial institutions: Build strong relationships with financial institutions, lenders and other key players in the financial industry. These associations can provide valuable insight into economic trends and potential challenges and provide support during difficult times.
  3. Global Collaboration Network: Collaborate with a global network of professionals and experts. This can help insolvency practitioners draw on different perspectives and expertise from colleagues in different regions, giving a broader view of global economic factors.
  4. Stress testing: Regularly tests insolvency processes to assess their resilience under adverse economic conditions. Early identification of weaknesses allows adjustments to better respond to financial challenges.
  5. Client Education and Communication: Educates clients about the potential effects of economic factors on insolvency proceedings. Clear communication about the challenges and opportunities of the economic environment can help manage expectations and build trust.
  6. Invest in technology: Apply technology to improve efficiency and effectiveness. Digital tools, analytics and automation can streamline processes, reduce costs and improve the overall efficiency of insolvency proceedings.
  7. Monitoring Legislative Changes: Keep track of changes in insolvency laws and regulations that may be affected by economic conditions. Understanding the legal world is critical to adapting strategies to changing rules.
  8. Cooperate with government agencies: Build relationships with government agencies and regulatory agencies. Understanding government initiatives, stimulus packages and economic policies can provide insight into potential opportunities and challenges for insolvency practitioners.

D. Imposition of Heavy Penalties : Imposition of Heavy fines and penalties by the regulatory authorities are one of the major concerns of the IP’s and hence a source of Threat for them . This threat can not be mitigated and should not be mitigated so that a sense of discipline and responsibility on the IP’s . This threat also ensures that the legal and regulatory norms are being effectively followed by the professionals without any negligence and delays .

Results of Survey [Conducted on 5IP’s]

When asked by 5 IP’s as to what do they consider their strengths these were the responses that I got:-

  • Legal knowledge,
  • Professionalism,
  • Business acumen,
  • Independent & Unbised,
  • Negotiation Skills,
  • Process Driven
  • Resolution Orientation rather than Procedure follower
  • Team Leader ability
  • Positivity and Problem solving attitude and approach
  • Professional thinking and approach
  • Interpersonal Skills
  • Experience at Senior Level in Corporates
  • Knowledge of Finance and Accounting
  • Knowledge of Compliances
  • Communication skills

When asked by IP’s as to what do they consider there weaknesses these were the responses that I got:-

  • Lack of Business knowledge,
  • No financial muscle to fight with Promoters,
  • Lack of Support from Regulatory Authorities.
  • Floating approach 4) Defocused working
  • Unskilled Team
  • Focus on Compliance rather than resolution.

When asked by IP’s as to what do they consider as Threats in this profession these were the responses that I got:-

  • Aggressiveness of Stakeholders;
  • Un-necessary litigation;
  • Non-receipt of Fees & Expenses.
  • Lack of Support from system like NCLT, IBBI, IPA
  • Lack of awareness among Govt Agencies
  • Interplay of different laws – lack of clarity even after Section 32A
  • Most cases in Liquidation due to lack of confidence in Market
  • No independent system in appointment of IRP, partiality cannot be avoided
  • Prolonged delays in NCLT forums to decide on cases which encourages parties to go for out of court settlements.
  • Too many qualified IPs compared to actual cases coming into IBC 9) Not a remunerative
  • Too many regulatory compliances with overdose of penalties and disciplinary action on IPs
  • Rouge Promoters
  • Non-cooperation from the employees of CD,
  • Non-cooperation from CoC,
  • continuing litigation by Govt Departments by including IPs when the plan is already
  • approved for pre CIRP periods
  • physical threats particularly at remote locations

When asked by IP’s as to what opportunities can be created ‘in this profession these were the responses that I got:- 

  • Regulatory & Government Authorities should be better informed
  • Fees structure for individual insolvency should also be decided
  • Stakeholders and/or outsiders should not be encouraged by the courts at later stages.
  • Rolling of Individual and Partnership Insolvency
  • Stronger Judiciary resulting in shorter period of litigation and quick resolution
  • Group, Cross Border and piecemeal Insolvency
  • Marketplace development for dealing in stressed Assets
  • IBBI to set up Quick response team to give clarity on the contentious issues
  • Extending Pre-Packs to Large Corporates
  • Insolvency of Partnership Firms
  • Training and recognition as Mediators
  • Authorized Persons for appearing before NCLT in Insolvency Cases like Lawyers, CAs , Cost Accountants etc.
  • Robust processes at CoC and NCLT level to ensure timebound completion that will encourage banks to choose IBC as a preferred route

Successful Cases resolved by Insolvency Professionals

 Case No.1:  Resolution of Bhushan Steel

Bhushan Steel Ltd. was established on the 7th of January in 1983 by Neeraj Singal, Brij Bhushan Singal, Ritu Singal, Aishwarya Singal, and Brij Bhushan Singal who were part of a HUF. The company’s headquarters are located in New Delhi, India. It specializes in the production of steel for automobiles and household appliances, including Galvanized Coil and Sheet, High Tensile Steel Strapping, Color Coated Coils, Galume Sheets and Coils, , Billets, Sponge Iron, Precision Tubes, Wire Rods etc. . The company has the capacity to produce 2 million tonnes per year and operates manufacturing facilities in Uttar Pradesh (Sahibabad Unit), Maharashtra (Khopoli unit), and Orissa Plant (Meramandali unit) in India. The primary lenders for the company are the State Bank of India, Punjab National Bank, ICICI Bank, Canara Bank, Union Bank of India, and IDBI Bank.

In the year 1987, during a period of prosperity in the steel industry when the demand for steel was at its peak, Bhushan Steel was inaugurated. Previously, Bhushan Steel had to rely heavily on steel imports. In an effort to address this issue and enhance productivity while reducing dependence, the company opted for a loan to establish a new manufacturing facility in the state of Odisha, within the boundaries of the nation. However, the onset of the 2008 financial crisis resulted in a significant catastrophe for the company. The price of steel per tonne plummeted from $1,200 to $300 as a direct consequence of this crisis. Furthermore, the construction of the plant remained incomplete and the bank had already initiated the process of demanding repayment. Consequently, Bhushan Steel experienced a drastic decline in its stock value due to the weight of its substantial debt, ultimately leading to the company’s declaration of insolvency.

Key Role of IP’s :

  1. RP along with his team maintained close dialogue with suppliers as a result no disruptions were caused in the process of CIRP
  2. The RP and team maintained strict oversight over all the procedures of CIRP in order to meet with the strict timelines enshrined in 2016 code.
  3. The RP along with his team prepared marketing material in order to attract investors and reached out to various stratergic and financial investors both national and international.

At the completion of the resolution process the Company has accomplished a total revenue of Rs. 21,536 Crore during the fiscal year 2021 and a consolidated net profit amounting to Rs. 2,518 Crore. Currently, it functions as a viable asset that greatly contributes to the generation of income within the nation. Moreover, the stock price of the Company has experienced a notable increase from ₹ 27.65 per share on May 18, 2018 (the date on which the resolution plan was implemented) to Rs. 52.15 as of March 31, 2021. This increase has significantly contributed to the generation of wealth in the country, serving as a clear indication that Bhushan Steel Limited stands as one of the distinguished successes of the IBC regime.

Case No. 2 : Resolution of Jal Power Operation Ltd.

Jalpower Corporation Limited1 (JPCL) was granted the Rangit Stage-IV Hydro Electric Project in 2004 by the Government of Sikkim (GoS) as part of the national endeavor to exploit the hydro potential of the country. The contractual agreement entailed the establishment of a run-of-the-river type power plant with pondage, boasting an installed capacity of 120MW, located on the Rangit river in West & South Sikkim. The implementation agreement, signed in 2005 on a BOOT basis (Build, Own, Operate and Transfer), was a joint effort with the GoS, with a duration of 35 years from the date of commercial operation. The initial project cost was estimated to be approximately Rs. 775 Crores, which was financed through a combination of debt and equity in a ratio of 75:25. On April 9, 2019, the Corporate Insolvency Resolution Process (CIRP) of the company was initiated under the IBC.

On March 31, 2021, NHPC Limited successfully concluded the handover process within a span of two years from the Insolvency Commencement Date, followed by a mere 2.5-month period from the approval of the resolution plan by the NCLT. During this process, NHPC Limited dutifully transferred the total consideration, as stipulated in the resolution plan, to the company’s designated account. Simultaneously, on the aforementioned date, the RP executed the transfer of funds to all stakeholders, including lenders, operational creditors, employees, and CIRP dues, adhering to the distribution guidelines outlined in the resolution plan. As a result of these developments, the company has now emerged as a thriving subsidiary of NHPC.

The resolution procedure of JPCL proved to be quite arduous and intricate. It entailed the task of finding a solution for a hydro power asset that was only half complete, with a significant financial obligation to complete it. Remarkably, this resolution was achieved within approximately six months of assuming the role of Resolution Professional (RP), and the subsequent handover was completed within 2.5 months of receiving approval from the National Company Law Tribunal (NCLT), despite the challenges posed by the Covid-19 pandemic. The satisfaction derived from this accomplishment is immense. Ultimately, the IBC process succeeded in salvaging an asset that was on the verge of imminent closure. This achievement will undoubtedly benefit the country’s economy by providing a fully functional and operational hydro power plant within a span of two to three years. Moreover, it has not only preserved existing jobs but also has the potential to generate additional employment opportunities in the years to come. Furthermore, the resolution process has enabled lenders and other operational creditors to reach a settlement, which would otherwise have resulted in complete write-offs. Thus, the resolution process of Jalpower Corporation Limited has successfully upheld the primary objective of the IBC, which is to expedite the resolution of insolvency or bankruptcy cases, safeguard financially distressed businesses, and facilitate the prompt recovery of loans.

Case No. 3: Orchid Pharma Ltd. Resolution Process

The resolution process undertaken for OPL, known as the Corporate Insolvency Resolution Process (CIRP), has been a case of great interest and intellectual stimulation under the IBC, featuring several groundbreaking aspects. Not only has it led to a successful resolution and turnaround of the company in question, but it has also established legal precedents and benchmarks in the field of distressed asset resolution and turnaround in India. The key highlights and takeaways from this resolution can be summarized as follows:

a. The maintenance of the company as a Going Concern (GC) throughout the entire 31 months of the CIRP.

b. The achievement of cost reduction and optimization across various expenditure categories, resulting in the implementation of efficient and sustainable operational practices.

c. The retention of major customers in regulated markets through the establishment of trust and the timely fulfillment of their requirements.

d. The retention of key employees and the provision of suitable rewards to ensure the uninterrupted functioning of operations.

e. Dealing with the legal disputes arising from resolution applicants who were unsuccessful in their attempts to resolve the matter and the failure of a resolution applicant to execute the resolution plan, resulting in the plan being declared void.

f. Finally, the execution of the resolution plan during the initial phase of the Covid-19- induced lockdown.

Achievements of an IP

The RP implemented various measures and strategies to address the sales and marketing functions. Specifically, the RP assumed leadership of the sales department and personally engaged with customers to offer them the required guarantees. Additionally, the RP also made certain that customers were persuaded to purchase additional products with higher profit margins. Consequently, these efforts resulted in increased utilization of production capacity and improved returns from limited production.

Employee payroll was rationalized during the period of Corporate Insolvency Resolution Process (CIRP), resulting in savings of approximately 28.65 Crores per year. As a result, the number of employees decreased from around 1,600 at the beginning of CIRP to approximately 1,300 towards the end of CIRP. Furthermore, the Resolution Professional (RP) ensured the elimination of unnecessary costs, such as the removal of inactive contract manpower. In order to retain the skilled workforce, increments ranging from approximately 10% to -30% were granted twice during the CIRP period, with the approval of the Committee of Creditors (CoC) in February 2019 and December 2019. These increments were funded by the savings obtained through the rationalization of the workforce.

Given the company’s dire situation regarding power supply, the Responsible Person (RP) promptly recognized the need to seek alternative sources of power. Consequently, the RP initiated the process of acquiring power from the IEX energy exchange, which proved to be a prudent choice resulting in substantial cost savings of 70-80 lakhs per month in comparison to the conventional method of procuring electricity from the state distribution utility.

The optimization of fixed overheads has been accomplished through the implementation of budgeting systems and the assessment of the recurring expenses experienced by the CD. Identification and reduction of unnecessary costs in manpower, overheads, electricity, insurance, and other areas have contributed to the increase in EBITDA from 2% at the commencement of CIRP to -15% during the CIRP period.

The company experienced a shift in its product mix, prioritizing those products that generated greater profits and fulfilled the demands of loyal customers. Consequently, this led to a notable enhancement in the levels of EBITDA, transitioning from a negative state prior to the commencement of the Corporate Insolvency Resolution Process (CIRP) to a range of 12-15% during the CIRP period, which spanned approximately 31 months. Simultaneously, the utilization of capacity also witnessed an increase from 35% to 40%, accompanied by a heightened realization of the product mix that was being manufactured.

The implementation of Management Information Systems (MIS) was executed by RP, who introduced monitoring systems with the objective of optimizing the payment processes and encouraging timely collections. Furthermore, RP implemented cross-functional MIS systems and employed business intelligence tools to facilitate data-driven decision making within the organization.

Maintenance of the compliance calendar and facilitation of the completion of regulatory inspections were conducted by RP. Throughout RP’s tenure, a total of 3 inspections conducted by USFDA and 2 inspections conducted by EU GMP were successfully completed. The inspecting authorities recommended the continuation of the respective licenses and approvals. The extension of these regulatory approvals not only allowed the company to persist as an ongoing enterprise but also served to attract Potential Resolution Applicants (PRAs). Additionally, RP ensured compliance and license calendars were meticulously upheld to guarantee that renewals were promptly applied for within the designated time limits, and all essential approvals were kept up to date.

Alternates to Letter of Credit (LC): Negotiation with customers explaining the constraints faced by the company resulted in receipt of part advances for orders placed and elongation in credit period offered keeping the working capital cycle in control.

Case No. 4: Resolution Process of Jal Power Corporation Limited

Jalpower Corporation Limited1 (JPCL) was granted the Rangit Stage-IV Hydro Electric Project in 2004 by the Government of Sikkim (GoS) as a component of the national endeavor to harness the hydroelectric potential of the nation. The accord entailed the establishment of a run-of-the-river type power facility with pondage, possessing an installed capacity of 120MW (3x40MW), located on Rangit river in West & South Sikkim. The execution agreement, which was founded upon the BOOT basis (Build, Own, Operate and Transfer), was jointly signed with the GoS in 2005, and was valid for a period of 35 years commencing from the date of commercial operation. The initial projected cost was approximated to be Rs. 775 Crores, which was financed through a combination of debt and equity in a 75:25 ratio. The Corporate Insolvency Resolution Process (CIRP) of the company was initiated on April 9, 2019 under the IBC.

Achievements by an IP

  1. RP was able to negotiate a reduction of salary pay out by ~ 50%. Besides, no pay out was made to these two senior personnel until resolution/ handover was achieved.
  2. As the wellbeing of 29 project affected families was the integral condition of implementation agreement, RP ensured that regular payout was made to families to avoid any dispute.
  3. Taking into account the concerns of those with a vested interest, RP undertook a range of measures to accelerate the approval process of the Resolution Plan. This included submitting an Interim application to the NCLT to expedite the urgent listing.

Conclusion of Resolution proceedings

The process of resolving the issues faced by JPCL proved to be quite arduous and intricate. The task at hand was to find a solution for a hydro power asset that was only halfway completed, but required a significant amount of funds to be finished. This had to be accomplished within a span of approximately six months as the Resolution Professional (RP), and then handed over within 2.5 months of receiving approval from the National Company Law Tribunal (NCLT), despite the challenges posed by the Covid-19 pandemic. However, the satisfaction gained from successfully completing this task was immense. By utilizing the IBC process, a power plant that was on the brink of closure was successfully salvaged. This achievement will undoubtedly benefit the country’s economy by providing a fully operational hydro power plant within the next two to three years. Additionally, numerous jobs were saved, and more employment opportunities will be generated in the years to come. Furthermore, the lenders and other operational creditors were able to reach a settlement, which would have otherwise resulted in a complete write-off. Thus, the resolution process of Jalpower Corporation Limited exemplifies the primary objective of the IBC, which is to expedite the resolution of insolvent or bankrupt businesses, preserve bankrupt entities, and facilitate the recovery of loans.

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