Section 146: Resignation by Bankruptcy Trustee under the Insolvency and Bankruptcy Code 2016
Section 146 of the Insolvency and Bankruptcy Code, 2016 provides when a bankruptcy trustee may resign and sets out the procedure for appointment of a replacement trustee. It also governs transfer of the bankrupt's estate, co-operation by the outgoing trustee, notice of the new appointment and release of the trustee who resigned.
Section 146 - Resignation by bankruptcy trustee
(1) A bankruptcy trustee may resign if:
(a) the trustee intends to cease practising as an insolvency professional; or
(b) there is a conflict of interest or change of personal circumstances which precludes the further discharge of duties as a bankruptcy trustee.
(2) The Adjudicating Authority shall, within seven days of acceptance of the resignation of the bankruptcy trustee, direct the Board for replacement.
(3) The Board shall, within ten days of the direction of the Adjudicating Authority under sub-section (2), recommend another bankruptcy trustee as a replacement.
(4) The Adjudicating Authority shall appoint the bankruptcy trustee recommended by the Board under sub-section (3) within fourteen days of receiving the recommendation.
(5) The replaced bankruptcy trustee shall deliver possession of the estate of the bankrupt to the bankruptcy trustee appointed under sub-section (4) on the date of the new trustee's appointment.
(6) The Adjudicating Authority may direct the bankruptcy trustee who has resigned to share all information with the new bankruptcy trustee concerning the bankruptcy process and to co-operate with the new bankruptcy trustee in such matters as may be required.
(7) The bankruptcy trustee appointed under this section shall give notice of the appointment to the committee of creditors and the bankrupt within seven days of appointment.
(8) The bankruptcy trustee replaced under this section shall be released in accordance with Section 148.
When may a bankruptcy trustee resign?
Section 146 permits resignation on two specified grounds. The first is where the trustee intends to cease practising as an insolvency professional. The second applies where a conflict of interest or a change in personal circumstances prevents the trustee from continuing to discharge the duties of bankruptcy trustee.
Who is a bankruptcy trustee?
For Part III of the Code, Section 79 defines a bankruptcy trustee as the insolvency professional appointed as trustee for the estate of the bankrupt under Section 125. The trustee administers the bankruptcy estate and performs the functions and duties assigned by the Code.
Replacement after resignation
Once the resignation is accepted, the Adjudicating Authority must, within seven days, direct the Insolvency and Bankruptcy Board of India to arrange for replacement. The Board must recommend another bankruptcy trustee within ten days of that direction. The Adjudicating Authority must then appoint the recommended trustee within fourteen days of receiving the recommendation.
Transfer of the bankruptcy estate
The outgoing bankruptcy trustee must deliver possession of the bankrupt's estate to the replacement trustee on the date the replacement is appointed. This requirement provides continuity in control and administration of the bankruptcy estate.
Information sharing and co-operation
The Adjudicating Authority may direct the trustee who resigned to provide the new bankruptcy trustee with all information concerning the bankruptcy process and to co-operate in matters required for continuation of the process.
Notice of appointment
The replacement bankruptcy trustee must notify both the committee of creditors and the bankrupt of the appointment within seven days. This differs from replacement under Section 145, where the replacement trustee is required to notify the bankrupt.
Release of the outgoing trustee
Resignation does not by itself complete the statutory release of the outgoing trustee. Section 146(8) expressly provides that the trustee replaced following resignation is released in accordance with Section 148.
Related provisions
Section 146 should be read with Section 143 - Standard of conduct, Section 144 - Fees of bankruptcy trustee, Section 145 - Replacement of bankruptcy trustee, Section 147 - Vacancy in office of bankruptcy trustee, and Section 148 - Release of bankruptcy trustee.