While the powers of the Board are suspended and the Directors continue to perform their duties, are they entitled to managerial remuneration while the CIRP is under progress?
The relevant provision dealing with the directors of the Corporate Debtor which is undergoing CIRP is explained under Section 17 (1)(b) of the Insolvency and Bankruptcy Code (in short I & B, Code”. As per Section 17 (1) (b) of the I & B Code, the power of the board of directors or partners of the Corporate Debtor shall stand suspended and shall be exercised by the Interim Resolution Professional.
Further, it would be relevant to note the provision of Section 19 of the I & B Code wherein it has been mandated that the personnel of the Corporate Debtor including its promoters or any other persons associated with the management of the Corporate Debtor shall extend all assistance and cooperation to the Interim Resolution Professional as may be required by him in managing the affairs of the Corporate Debtor.
The Definition of personnel as given under Section 5 (23) of the I & B Code includes the directors as well as partners. In my opinion although the powers of the board of directors are suspended, however, the same does not affect the functioning of the directors in their individual capacity and the directors are bound to discharge their day to day functions and must ensure that the Corporate Debtor remains an on-going concern. As per the mandate of Section 17(1)(c) of the I & B Code, the only difference would be that the directors must report to the Interim Resolution Professional or the Resolution Professional as the case may be. Therefore, in my opinion, the directors/partners, who continue to discharge their day to day functions would continue to draw the remuneration irrespective of the commencement of the insolvency resolution process.
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By: EasyLegalTax Team