IBBI’s new, stringent norms would enhance governance of insolvency professionals and help achieve IBC’s overall objectives.
By Rachit Sharma
With an intent to strengthen the norms governing resolution professionals, the Insolvency and Bankruptcy Board India (IBBI), on July 23, 2019, has notified the amended Insolvency Professionals Regulations, and the Model Bye-Laws and Governing Board of Insolvency Professional Agencies Regulations. The regulations are effective from July 23, 2019. The key amendments are discussed in detail as under:
Authorisation of assignment by insolvency professional agency (IPA): The amended norms provide that effective January 1, 2020, an insolvency professional (IP) shall have to obtain authorisation for assignment from the IPA before accepting or undertaking any assignment as interim resolution professional, resolution professional, liquidator, bankruptcy trustee, authorised representative or in any other role under the Insolvency and Bankruptcy Code (IBC), 2016. The scope of the term ‘assignment’ is very wide, covering all work that an insolvency resolution profession could render under the IBC.
The authorisation for assignment means an authorisation to undertake an assignment issued by an IPA to a member IP. The additional requirement for authorisation for assignment by IPA is very stringent for resolution professionals. As per current norms, IPs are already registered with both IBBI and the insolvency agency. The added requirement of taking approval from IPA could be very harsh for an IP. As of now, there are no rules which prescribes criteria to be observed by IPAs for issuing or rejecting authorisation for assignment. Also, the norms don’t specify the time limit for which the authorisation shall remain valid. It is expected that IBBI would soon release guidelines to IPAs for issuing such authorisation.
Resolution professional can’t take employment during assignment: Amended norms prohibit an IP from taking any employment when they hold an authorisation for assignment or when they are undertaking an assignment. This would enable an individual to seek registration as an IP even when they are in employment. They must, however, discontinue employment when they wish to have an authorisation for assignment, and may surrender the authorisation when they wish to take up employment.
No related party transactions with substantial creditor during insolvency resolution process: In order to avoid any conflict of interest on the part of the resolution professional, the amended norms prohibit IPs and their relatives from accepting any employment, other than employment secured through open competitive recruitment, with, or render professional services, other than services under the IBC, to a creditor having more than 10% voting power, the successful resolution applicant, the corporate debtor or any of their related parties, until a period of one year has elapsed from the date of their cessation from such process. Further, the norms restrict an insolvency professional from engaging or appointing any of their relatives or related parties, for or in connection with any work relating to any of their assignments.
Disclosure of conflict of interest by IP: The norms require an IP to disclose details of any conflict of interest to the stakeholders wherever they comes across such a conflict during an assignment.
Key amendments to the IBBI (Model Bye-Laws and Governing Board of Insolvency Professional Agencies) (Amendment) Regulations, 2019 are:
Empowerment of IPA to authorise assignment: IBBI model by-laws and governing board of IPA empowers IPAs to issue/renew an authorisation for assignment to IPs in accordance with its by-laws. This amendment has been introduced in order to give effect to the amendment to the IBBI (Insolvency Professionals) regulation which makes it mandatory for resolution professionals to obtain authorisation of assignment from an IPA.
Cap on age limit for IP for obtaining assignment: The amendment norms provide that subject to meeting other requirements, an IP would be eligible to obtain an authorisation of assignment if they have not attained the age of 75 years. The amended norms however, allow an individual to be appointed as an independent director on the governing board of an IPA up to the age of 75 years.
Resolution professionals play a key role in the entire resolution process as it is very important for all stakeholders that IPs perform their duty without any biases or conflicts of interest. The amendments, such as prohibiting IPs from doing anything that could be considered as a conflict of interest, mandating disclosure of such conflicts, etc, would further enhance governance of IPs, and would help in the achievement of the overall objectives of the IBC.
(The author is DGM, Taxmann. Views are personal)