1. Crackdown on shell companies: Government to tighter norms for insolvency professionals on anvil

Crackdown on shell companies: Government to tighter norms for insolvency professionals on anvil

Amid a crackdown on directors of shell companies, the government is considering to further tighten the scrutiny of candidates applying for the licences of insolvency professionals, in a bid to prevent unscrupulous elements from entering the critical insolvency eco-system

By: | Published: September 30, 2017 4:48 AM
insolvency professionals, insolvency professionals norms, shell companies, shell companies in india, insolvency eco-system, demonetisation, demonetisation exercise, fake companies in india, money laundering, black money transaction, black money transaction in India, government on black money Move aimed at preventing at least 3 lakh disqualified directors of shell companies from entering the insolvency eco-system.

Amid a crackdown on directors of shell companies, the government is considering to further tighten the scrutiny of candidates applying for the licences of insolvency professionals, in a bid to prevent unscrupulous elements from entering the critical insolvency eco-system, a senior official told FE. The move comes amid apprehensions that some of the disqualified directors of shell companies may try to get a backdoor entry into the corporate system by applying for the licences of IPs. As part of its battle against channels of black money following demonetisation, the government has disqualified at least three lakh directors of shell companies from being appointed in any other company as directors or from being reappointed in the firms they were associated with. This was the result of a government directive to disqualify directors of such shell companies, which have not filed returns for three or more years. Usually, chartered accounts, company secretaries, cost accountants, lawyers with ten years of professional experience are eligible to become IPs if they pass the limited insolvency examination conducted by the Insolvency and Bankruptcy Board of India (IBBI) and fulfil certain other conditions.

“The IPs have to be fit and proper. If somebody is a disqualified director of a shell firm, his integrity is under question. So people with such questionable records will not be allowed to become IPs,” said the official. According to rules, for determining whether an individual is fit and proper, the IBBI may take account of any consideration as it deems fit, including but not limited to the following criteria — integrity, reputation and character; absence of convictions and restraint orders; competence, including financial solvency and net worth. However, preventing such disqualified directors will be easier said than done, given their sheer numbers.

Already, banks have been advised to restrict operations of the accounts of shell firms and go in for enhanced due diligence while dealing with companies in general. They have been asked to view with suspicion any company that’s not filing annual returns of fulfilling other mandatory obligations.

The crackdown on shell companies hardened since early September when the ministry of corporate affairs struck off 2,09,032 such firms, used to funnel black money — from the registrar of companies and barred the operation of their bank accounts. Even in his Independence Day speech, Prime Minister Narendra Modi said the government had deregistered more than 1.75 lakh shell companies with doctored accounts.

Recently, the government said a director or an authorised signatory of these ‘struck-off’ companies could face up to 10 years in jail if found guilty of siphoning off money. The crackdown comes after the mining of the data following the demonetisation exercise.

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