Resolution-first insolvency process requires expressions of interest before liquidation, and a failed process may justify replacing the resolution professional.
Liquidation under the insolvency framework is a last resort and cannot be pursued without first inviting expressions of interest and resolution plans. The resolution professional must facilitate a proper resolution process by calling for prospective applicants before any recommendation for liquidation is made; where that step is omitted, the liquidation recommendation is not accepted. The failure to invite resolution plans also shows non-compliance with the resolution professional's duties, making continuation of the existing resolution professional inappropriate. In that situation, the process may be continued under a substituted resolution professional, with time extended for further insolvency steps and valuation reconsidered if necessary; the final status report of the earlier professional was rejected.
Issues: (i) Whether liquidation could be recommended and pursued without inviting prospective resolution applicants and expressions of interest in terms of the Code; (ii) Whether the existing resolution professional could be continued and the final status report accepted.
Issue (i): Whether liquidation could be recommended and pursued without inviting prospective resolution applicants and expressions of interest in terms of the Code.
Analysis: The resolution framework under the Code places the primary emphasis on resolution, with liquidation as a measure of last resort. The resolution professional is required to preserve and protect the assets of the corporate debtor and, for that purpose, to invite prospective lenders, investors and other persons to put forward resolution plans. Where no expression of interest is issued and no resolution plan is placed before the committee of creditors, a recommendation for liquidation cannot be treated as having arisen from a proper resolution process.
Conclusion: The liquidation recommendation made without inviting resolution plans was not accepted.
Issue (ii): Whether the existing resolution professional could be continued and the final status report accepted.
Analysis: The failure to invite expressions of interest reflected non-compliance with the duty cast on the resolution professional. In those circumstances, continuation of the existing resolution professional was found inappropriate. The Tribunal directed substitution of the resolution professional, extended time for completion of the corporate insolvency resolution process, and permitted reconsideration of valuation if necessary. The final status report submitted by the earlier resolution professional was therefore not fit for acceptance.
Conclusion: The existing resolution professional was replaced and the final status report was rejected.
Final Conclusion: The order disapproved the attempted move to liquidation at that stage, required a fresh and lawful continuation of the insolvency process under a new resolution professional, and extended the timeline for further steps.
Ratio Decidendi: A resolution professional must first invite expressions of interest and facilitate consideration of resolution plans before liquidation can properly be pursued, since liquidation is only a last resort under the insolvency framework.
TaxTMI 
AI Drafter ✕
TaxTMI 
TaxTMI 
