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Insolvency professional agencies (IPAs) must promptly recover penalties from erring members and deposit it in a designated fund, the Insolvency and Bankruptcy Board of India (IBBI) has said in a move aimed at instilling greater rigour in a discipline that has emerged with the dawn of India’s insolvency regime.

The development is significant as these professionals play a key role in assessing the assets and liabilities of companies going through bankruptcy proceedings, as well as in the admission of claims by various parties and in inviting fresh investors.

“The agency shall promptly realize the monetary penalty imposed by the disciplinary committee and credit the same to the fund constituted under Section 222 of the Code," the bankruptcy regulator said in an amendment to the model charter these agencies have to follow. All fees and charges levied by IBBI are credited to this fund. The move is effective 22 July.

The rule is a sign of IBBI’s efforts to streamline the service, amid instances of alleged violations by insolvency professionals. In July, the bankruptcy board suspended the practice of three insolvency professionals for terms ranging from 30 days to one year for alleged breach of rules.

“The amendment forces the hand of the insolvency professional agency in ensuring that the penalties are realized. This improves the enforcement mechanism and works as a warning to insolvency professionals to be more careful and diligent," said Anoop Rawat, partner, insolvency and bankruptcy, Shardul Amarchand Mangaldas & Co, a law firm.

Insolvency professionals are managing insolvent companies with a high value of underlying assets and IBBI and the agencies need to penalize defaulters to set an example, according to Rajiv Chandak, partner at Deloitte India.

Some experts, however, believe that there are bound to be complaints against professionals from unhappy stakeholders given the nature of the work and the evolving nature of India’s bankruptcy code.

“We don’t think the number is increasing with respect to instances of misconduct...The expectations of different stakeholders from insolvency professionals are different, and the ones whose expectations are not met are the ones who file complaints against these professionals," said Daizy Chawla, senior partner at Singh & Associates, a law firm.

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