Professional entities can now handle any number of insolvency cases

The Insolvency and Bankruptcy Board of India’s (IBBI) has taken a host of steps to rationalise the regulatory framework for the insolvency professional entities (IPEs). This will remove ambiguities in the roles and responsibilities of IPEs, and subsequently enhance the efficiency of the Corporate Insolvency Resolution Process (CIRP), say experts.

An IPE can be a company, a limited liability partnership or a registered partnership firm, allowed to carry on the activities of an insolvency professional (IP). The Insolvency and Bankruptcy Code (IBC) authorises the IP to act as an interim resolution professional, resolution professional, liquidator, or bankruptcy trustee, etc. in any insolvency case.

On February 1, the IBBI clarified that the restrictions imposed on the number of assignments that an IP can take shall apply only on IPs who are individuals and not on IPEs. This means, IPEs now have a broader scope to act in the capacity of IPs without the limitations on the number of assignments.

“With their institutional framework and access to a larger pool of resources, IPEs can manage multiple assignments more effectively than individual IPs, and bring more flexibility and efficiency into the CIRP,” said Siddharth Mody, Partner at J. Sagar Associates (JSA).

The regulator further clarified that the “minimum fixed” fee structure and a performance-linked incentive fee for the IPs, will not apply to IPEs, as the IBBI feels it’s “prudent” to have a market-determined fee for them at this juncture as the IPEs have an expanded role under the CIRP.

“Given their institutional framework, IPEs are better placed to negotiate their fees commensurate with their pool of in-house resources and diverse range of services offered by them as compared to an individual,” said the IBBI.

By allowing the fee for IPEs to be market-determined, it is anticipated that the competitive environment will lead to more cost-effective solutions for the management of insolvency processes, potentially lowering the cost of insolvency resolution, experts say.

“The clarification about the linking of fees with market determined rates will ensure greater objectivity and efficiency in functioning as the fees need to be commensurate with the complexity of each case,” said Sudhir Chandi, Partner at Resurgent Resolution Profesional.

On the issue of initiating disciplinary proceedings against an IPE, the IBBI clarified that for contraventions, the regulator can issue show cause notice to the partner or director of the entity, authorised to sign and act on a respective assignment. And in cases of repeated contraventions, the show cause notice can be issued to the IPE.

In another circular, IBBI gave clarity pertaining to the rendering of professional service by an IP in the implementation of the resolution plan approved by the Adjudicating Authority (AA) as well as on compliance regarding billing for services availed by IP from professionals.

“In order to facilitate smooth implementation of the resolution plan, it is hereby clarified that an IP may render professional service in relation to implementation of resolution plan approved by the AA, provided details of such service are mentioned in the resolution plan approved by the AA,” said the IBBI.