Resolution Bazaar

Games Claimants Play

In an insolvency resolution process, claimants—including financial and operational creditors, trade creditors, employees, and other stakeholders with claims against the corporate debtor—can sometimes engage in manipulative tactics to increase their recoveries or influence the resolution outcome in their favor. Here are some common “games” claimants may play to maximize their positions, delay payouts to others, or gain leverage during the Corporate Insolvency Resolution Process (CIRP): Inflating Claims

 Tactic: Claimants may inflate the amounts owed to them by adding unjustified penalties, interest, or fabricated invoices. They hope to increase their share of the eventual payout by submitting a higher claim than what is actually owed.
 Beneficiary: This benefits the claimant who stands to receive a disproportionately large payout if their inflated claim goes unchallenged.
 Countermeasure: The insolvency professional (RP) is responsible for verifying all claims by examining supporting documents and records to identify and reject inflated claims.

Exaggerating Secured vs. Unsecured Claims

 Tactic: Some creditors might attempt to claim a secured status for debts that are actually unsecured, or they might exaggerate the value of security attached to their claim to improve their ranking in the payout hierarchy.
 Beneficiary: Secured creditors, as they receive higher priority in the payout hierarchy.
 Countermeasure: The RP must verify the existence and value of security interests through thorough documentation review, legal checks, and valuations of the underlying assets.

Filing Multiple or Duplicate Claims

 Tactic: Claimants may submit multiple claims under different entities or file duplicate claims in an attempt to increase the likelihood of payout on each one.
 Beneficiary: The claimant who tries to increase their payout through multiple or redundant claims.
 Countermeasure: The RP should cross-check all submitted claims to identify duplicates or interconnected entities and ensure that only legitimate, non-duplicate claims are included in the process.

Delaying Documentation Submission

 Tactic: Claimants might delay submitting required documents, hoping to push their claim verification closer to the end of the process, which can lead to an expedited but less thorough verification.
 Beneficiary: The claimant, who may hope to bypass detailed scrutiny or pressure the RP into accepting the claim to meet deadlines.
 Countermeasure: RPs typically set strict deadlines for document submission and can reject claims if they are not substantiated in a timely manner.

Claiming Priority Through Alleged Employee or Operational Status

 Tactic: Claimants may falsely categorize their claims as those of employees or operational creditors to gain priority in payments or favorable terms.
 Beneficiary: The claimant, especially if they would otherwise be classified as a general unsecured creditor with a lower priority.
 Countermeasure: RPs should carefully review each claimant’s categorization and require evidence of employment or operational creditor status.

Seeking Out-of-Court Settlements

 Tactic: Claimants might approach the corporate debtor or related parties privately to negotiate separate settlements, attempting to recover a portion of their claims outside of the formal insolvency process.
 Beneficiary: The individual claimant, who can recover part of their dues while avoiding the uncertainty of the CIRP.
 Countermeasure: This practice is discouraged by regulations, and the RP and CoC have a right to monitor side arrangements, particularly if they disadvantage other creditors.

Lobbying CoC Members for Higher Payouts

 Tactic: Large claimants may try to influence CoC members to push for a resolution plan that prioritizes their interests, potentially at the expense of smaller or unsecured creditors.
 Beneficiary: Claimants with large claims, who can sway the decision-making process in their favor.
 Countermeasure: The IBC mandates that all creditors be treated fairly and proportionally. Clear documentation and transparency during CoC discussions help prevent undue influence.

Using Litigation Threats

 Tactic: Some claimants may threaten to initiate litigation or file objections to delay the process if their demands aren’t met, using legal action as leverage to secure better treatment or higher payouts.
 Beneficiary: The claimant, who may receive favorable terms to avoid potential delays or complications caused by litigation.
 Countermeasure: Regulatory bodies and courts can impose penalties for frivolous litigation intended solely to delay the process, although valid grievances must still be addressed.

Manipulating Claim Prioritization

 Tactic: Claimants might use technicalities to argue for higher priority in the distribution waterfall (e.g., claiming dues as “secured” or of higher priority than originally agreed upon).
 Beneficiary: The claimant, if they successfully position themselves above others in the distribution priority.
 Countermeasure: The RP must evaluate each claim’s priority based on factual and contractual basis rather than self-asserted prioritizations by claimants.

Pressuring RPs with Personal Incentives

 Tactic: Claimants might offer personal incentives or favors to the RP to secure their claims or expedite their processing, bypassing fair procedures.
 Beneficiary: The claimant offering the incentives stands to benefit, as their claim may be prioritized.
 Countermeasure: RPs are bound by a strict code of conduct, with potential penalties for unethical behavior. Oversight by the CoC and IBBI ensures accountability.

Filing Strategic Objections to Resolution Plans

 Tactic: Claimants may raise objections against proposed resolution plans to delay their approval, often seeking revisions that would increase their recovery or provide better terms.
 Beneficiary: The claimant filing objections, as they aim to secure a more favorable position in the approved plan.
 Countermeasure: The NCLT has discretion to dismiss objections that lack substantial grounds, though legitimate concerns must be considered.

Encouraging Delays in Asset Sales

 Tactic: Claimants, especially those with larger claims, may push to delay asset sales in hopes of getting higher bids, but this can often be a strategy to increase their recoveries while stalling the process for others.
 Beneficiary: The claimant(s) pushing for delayed asset sales, as they aim to maximize their potential recovery from asset liquidation.
 Countermeasure: RPs typically set deadlines for asset sales, and the CoC must approve any deviation from the original asset sale timeline.

Raising Disputes on Claim Adjudication

 Tactic: Claimants may dispute the adjudication of their claims, particularly if the RP rejects portions of their claims or reduces the payout amount, forcing the process into dispute resolution.
 Beneficiary: Claimants who hope to either increase their payout through dispute resolution or delay the process to negotiate better terms.
 Countermeasure: Adjudication decisions are typically based on objective criteria, with the CoC and IBBI providing guidance if disputes arise.

Lobbying for Liquidation Over Resolution

 Tactic: Certain claimants may favor liquidation over resolution if they believe they’ll receive more from asset liquidation than from a resolution plan, potentially persuading other CoC members to vote against resolution.
 Beneficiary: Claimants who expect higher recoveries under liquidation.
 Countermeasure: The RP and CoC are obligated to pursue resolution before liquidation, as resolution maximizes the chance for continuity of operations and recovery for all stakeholders.

Delaying Payment to Operational Creditors

 Tactic: Financial creditors, who usually have higher priority, might push for deferring payments to operational creditors, prolonging their wait or reducing their expected recoveries.
 Beneficiary: Financial creditors stand to gain if operational creditors are sidelined, often resulting in a larger share for themselves.
 Countermeasure: The IBC mandates fair treatment of all creditors, with a portion of proceeds set aside for operational creditors in resolution plans.

Safeguards and Oversight Mechanisms To prevent such tactics and ensure a fair insolvency resolution process, the IBC has implemented several safeguards:

 Verification Process by RP: The insolvency professional has the responsibility to verify and validate each claim based on documented evidence.
 Code of Conduct for RPs and CoC Oversight: RPs are required to adhere to a strict code of conduct and act impartially. CoC members oversee RP activities and can escalate concerns to the IBBI if needed.
 Transparency and Disclosure Requirements: All claims, payments, and voting outcomes must be transparently documented and shared with the CoC and relevant stakeholders.
 Judicial Oversight by NCLT: The NCLT provides a forum for disputes and grievances, where manipulative practices can be challenged and resolved based on legal standards.

These mechanisms help ensure that all claimants are treated fairly in the CIRP, minimizing the potential for manipulative tactics and enhancing the likelihood of an equitable resolution.

The described manipulative tactics highlight the complexities of insolvency resolution and the critical role of technology in mitigating such issues. Below is a detailed description of AI agents that can help prevent or address these claimant behaviors during the Corporate Insolvency Resolution Process (CIRP):

1. Claim Verification Agents Purpose: To identify inflated, duplicate, or fraudulent claims by thoroughly analyzing documentation and cross-referencing data. Functionality: Use Optical Character Recognition (OCR) and Natural Language Processing (NLP) to digitize and analyze claims, invoices, agreements, and other supporting documents. Apply anomaly detection algorithms to flag discrepancies, such as unusual interest rates, duplicate claims, or unexplained penalties. Cross-reference claims with debtor records, financial statements, and regulatory filings to validate amounts. Benefits: Quickly detect inflated claims, duplicate filings, and unjustified penalties, ensuring only valid claims are admitted.
2. Asset Valuation Agents Purpose: To accurately assess the value of secured and unsecured assets to verify security interests and prevent exaggeration. Functionality: Use machine learning models trained on historical asset valuations and sector-specific benchmarks to estimate the current and fair market value of pledged assets. Leverage real-time market data and sector-specific indices for dynamic valuations. Create valuation reports for secured claims to ensure the claimed security aligns with actual asset values. Benefits: Discourage creditors from exaggerating security interests and provide an accurate basis for priority claims.
3. Claim Deduplication Agents Purpose: To identify and eliminate duplicate or interconnected claims submitted by related entities. Functionality: Use entity resolution algorithms to detect related entities or creditors submitting multiple claims under different names. Apply graph-based clustering to map relationships between claimants and identify patterns of duplicate filings. Generate a unified claimant database by merging duplicates and flagging them for manual review if necessary. Benefits: Simplify the claims verification process and reduce payouts based on fraudulent duplications.
4. Workflow Monitoring Agents Purpose: To enforce deadlines and prevent delays in document submission and claim processing. Functionality: Automate reminders and notifications for claimants regarding submission deadlines using intelligent workflow engines. Track the status of claim verifications and flag incomplete or overdue submissions. Generate progress reports for the Resolution Professional (RP) and Committee of Creditors (CoC) to ensure timely processing. Benefits: Prevent intentional delays by claimants and ensure adherence to CIRP timelines.
5. Categorization and Prioritization Agents Purpose: To validate claimant categorizations (e.g., secured, unsecured, employee, or operational creditor) and ensure accurate prioritization in the payout hierarchy. Functionality: Use rule-based classification systems to validate claimant status based on pre-defined criteria (e.g., employment records for employees, contracts for operational creditors). Combine NLP and contextual data analysis to extract relevant information from supporting documents and categorize claims accordingly. Use blockchain or tamper-proof ledgers to track and verify the creditor hierarchy. Benefits: Prevent misclassification of claims and ensure an equitable payout distribution.
6. Compliance Monitoring Agents Purpose: To monitor and enforce adherence to regulatory requirements, preventing unauthorized out-of-court settlements or side arrangements. Functionality: Use rule-based AI systems to monitor regulatory deadlines, CoC meeting minutes, and communications to identify potential violations. Analyze creditor and debtor interactions for signs of collusion or non-compliance with CIRP guidelines. Alert the RP or CoC of any suspicious activities or non-compliance. Benefits: Ensure the process remains transparent and free from manipulative settlements.
7. Sentiment Analysis Agents Purpose: To detect undue lobbying or pressure on CoC members and the RP. Functionality: Use NLP-based sentiment analysis to evaluate communications, emails, and meeting transcripts for signs of coercion, undue influence, or lobbying efforts. Flag emotionally charged or manipulative language in interactions for further investigation. Provide sentiment reports to regulatory bodies or the RP to ensure fair decision-making. Benefits: Protect the integrity of CoC discussions and prevent disproportionate influence by large creditors.
8. Litigation Threat Analysis Agents Purpose: To assess the likelihood and impact of litigation threats and prepare countermeasures. Functionality: Use predictive analytics to assess past claimant behaviors, legal precedents, and grievance patterns to predict the probability of litigation. Simulate potential outcomes of disputes using game theory models to recommend strategies for handling threats. Generate cost-benefit analyses for addressing legitimate grievances versus dismissing frivolous claims. Benefits: Mitigate delays caused by litigation threats and reduce the risk of biased resolutions.
9. Resolution Plan Optimization Agents Purpose: To evaluate resolution plans and ensure they maximize recoveries for all stakeholders while minimizing manipulation. Functionality: Use multi-objective optimization algorithms to evaluate resolution plans based on creditor recoveries, operational continuity, and asset utilization. Simulate outcomes for different resolution scenarios to identify plans that balance interests fairly. Flag resolution plans that disproportionately benefit a single group or creditor. Benefits: Prevent biased plans and ensure equitable outcomes for all stakeholders.
10. Fraud Detection Agents Purpose: To detect suspicious or fraudulent activities in claim submissions and financial records. Functionality: Leverage unsupervised learning models to identify anomalies in financial transactions, invoices, or submitted claims. Use graph analysis to detect collusion between claimants or irregular patterns in creditor interactions. Cross-reference claim data with external databases to verify authenticity. Benefits: Reduce fraud and ensure the accuracy of claims and financial data.
11. Dispute Resolution Agents Purpose: To mediate disputes over claim adjudication or resolution plans through AI-driven negotiation tools. Functionality: Use decision tree models to evaluate evidence and propose fair solutions for disputed claims. Provide claimants with automated responses and justifications for claim rejections based on regulatory guidelines. Simulate possible outcomes of disputes to recommend optimal resolutions. Benefits: Reduce delays caused by disputes and streamline conflict resolution.
12. Asset Sale Management Agents Purpose: To manage and expedite asset sales while avoiding manipulative delays. Functionality: Use predictive pricing models to determine the best timing and pricing strategies for asset sales. Automate auction processes using smart contract platforms to ensure transparency and accountability. Provide real-time updates on asset sale progress to the CoC and stakeholders. Benefits: Prevent undue delays and maximize recoveries from asset liquidation.
13. Real-time Data Gathering Agents Purpose: To collect and analyze market data, economic indicators, and sector-specific benchmarks in real time. Functionality: Use web scraping tools and API integrations to gather market trends, pricing data, and competitor analysis. Provide insights into macroeconomic conditions affecting asset values or recovery rates. Integrate with valuation and prioritization agents to support informed decision-making. Benefits: Enable data-driven resolutions and accurate financial assessments.

Integration into the Insolvency Resolution Workflow These agents can work independently or as part of an integrated insolvency resolution platform. By leveraging a combination of AI-powered verification, anomaly detection, optimization, and sentiment analysis, these agents ensure transparency, fairness, and efficiency in the CIRP. The result is a process less vulnerable to manipulation, promoting equitable outcomes for all stakeholders.