IBBI cracks the whip on a dozen insolvency professionals
Summary
- The regulator’s focus comes in the context of the government’s efforts to clean up the corporate and financial sector balance sheets, which is seen as vital for a fresh investment cycle.
A dozen professionals looking after the affairs of bankrupt firms taken over by lenders have faced disciplinary action by the Insolvency and Bankruptcy Board of India (IBBI) since January, showing the regulator is taking a dim view of lapses in following the Bankruptcy Code provisions.
Orders issued by IBBI showed that disciplinary action ranged from issuing caution to the insolvency professional to be more careful in handling assignments to imposing fines and suspension of registration for periods ranging from three months to two years.
The alleged violations in some of these cases include suppression of facts, disposal of assets of the distressed company without approval, and acceptance of directorship in a company invested in the sick company, leading to conflict of interest, the orders showed.
In calendar year 2023, IBBI had issued disciplinary orders in over 70 cases, showed data from IBBI.
The trend shows the regulator is on a drive to make sure the administrators of sick companies strictly follow the rules while dealing with pressures of managing the competing interests of shareholders and diverse creditors.
Some of the professionals, however, do not agree with the disciplinary orders.
Mint reached out to all 12 professionals against whom disciplinary orders were issued this year. One them alleged the order was “arbitrary" while another questioned the way IBBI uses its power.
In yet another case, involving the suspension of registration for two years, the professional has moved the Madras High Court initiating contempt of court proceedings against IBBI officials. Mint has seen a copy of the petition.
One professional, who spoke on condition of anonymity, said disposing of the show cause notice issued by the regulator in the disciplinary matter took too long and the order was arbitrary.
The professional said that during the pendency of a show cause notice, professionals are not allowed to take up fresh assignments as resolution professionals or as liquidators. Due to a delay in issuing the final order, the professional in this case allegedly had to let go many assignments.
In this case, the creditors approved the resolution plan prepared by the resolution professional and had also confirmed the appointment of the professional as the administrator of the company. Eventually, the disciplinary order advised caution to the professional in handling assignments and suggested full compliance with the Bankruptcy Code.
Another professional, who also spoke on condition of anonymity, questioned the qualifications of the officials involved in the disciplinary proceedings. Emails sent to the other professionals seeking comments for the story remained unanswered at the time of publishing.
The regulator’s focus on taking strong disciplinary action comes in the context of the government’s efforts to clean up the corporate and financial sector balance sheets, which is seen as vital for a fresh investment cycle.
The government is banking on a further pick-up in private investments as it could add momentum to job creation and economic growth. Resolution professionals play a key role in assessing and recording the claims of creditors of distressed businesses, preventing them from becoming defunct wherever possible and stitching together revival plans with funds from new investors.
