Shareholding in IPAs: IBBI seeks to cap stake of multilateral bodies at 15%

The Insolvency and Bankruptcy Board of India (IBBI) has floated a discussion paper, proposing to cap the stake of multilateral institutions in an insolvency professionals agency (IPA) at 15%. However, there is no limit on the shareholding of the government or any statutory regulator in an IPA.

IPAs act as front-line watchdogs and share the responsibility of regulating insolvency professionals with the main regulator, IBBI. Currently, there are three IBBI-approved IPAs in the country, floated by bodies like the ICAI, ICSI and Institute of Cost Accounts of India. These IPAs induct insolvency professionals as their members and help develop professional standards and code of ethics under the IBC, based on the terms defined by the IBBI.

The IBBI proposes that an individual may serve as an independent director of an IPA for a maximum of two terms of three years each, or up to the age of 70 years, whichever is earlier.

Barring a few, provisions relating to organisational structure, board composition, shareholding pattern and managing director from and similar to the provisions in the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2012, would be applicable to IPAs, according to the discussion paper.

An independent director may be nominated by the IBBI from a list of names proposed by an IPA and the chairperson may be elected by the governing board from among independent directors.

The paper said there might be no restriction on foreign portfolio investors to have representation in the governing board of an IPA. The IPA may have a managing director, who should have an industry experience of 15 years in insolvency, banking, finance, insurance, securities or with a regulatory body, which may include at least five years as managing director or one notch below the board, among other criteria.

The insolvency regulator has also proposed to amend the IBBI (Information Utilities) Regulations, 2017 relating to board composition and managing director. The information utility (IU) stores financial information that helps establish defaults as well as verify claims, and thereby facilitates completion of transactions under the IBC in a time- bound manner.

The IBBI has sought public comments by September 5 on all its proposed changes to IPAs and IU.

The governing board of an IU may include shareholder directors, independent directors and managing director. The number of independent directors may not be lower than that of shareholder directors. Independent directors on the governing board of an IU may be nominated by the IBBI from a list of names proposed by the former.

An individual may serve as an independent director of an IU for a maximum of two terms of three years each or up to the maximum age of 70 years, whichever is earlier.

The IU is one of the four pillars of the insolvency ecosystem, the other three being the adjudicating authority (NCLT) and Debt Recovery Tribunal), the IBBI and insolvency professionals.