Competition, new rules crimp resolution professionals’ fees | Mint

Competition, new rules crimp resolution professionals’ fees

According to Insolvency and Bankruptcy Board of India (IBBI) data, there are currently 4,273 insolvency professionals in the country. (Mint)
According to Insolvency and Bankruptcy Board of India (IBBI) data, there are currently 4,273 insolvency professionals in the country. (Mint)

Summary

  • Fees have fallen to as low as 10-15 lakh per case from as high as 2 crore six years ago

NEW DELHI : Average fees charged by resolution professionals (RPs) and other consultants involved in insolvency and bankruptcy have declined by as much 70% during the past two years due to competition among professionals and tightening of rules by regulators, market participants said.

Back in 2017, when the Reserve Bank of India (RBI) published the ‘dirty dozen’ list of 12 large accounts against which the newly introduced Insolvency and Bankruptcy Code (IBC) would be used, the consultants were charging as much as 1-2 crore for each case. Six years later, the fees have come down to as low as 10-15 lakh per case, market participants said, requesting anonymity.

This drastic reduction in the fee payable for insolvency professionals is on account of increasing competition and tightening of rules by the regulators. Additionally, lenders who are primary stakeholders in IBC have also started to be more conscious of paying hefty fees, experts said.

According to Insolvency and Bankruptcy Board of India (IBBI) data, there are currently 4,273 insolvency professionals in the country.

“The fees have drastically been rationalized in IBC mandates, especially fees involving consultants and resolution professionals. Another key reason being that the lenders have become more conscious of expenditure from corpus of corporate debtor on account of their fiduciary responsibility vis-à-vis the other stakeholders," said Siddharth Srivastava, partner, Khaitan & Co.

“IBBI had also been quite vigilant on such cost issues, and its endeavour is to encourage RPs to incur reasonable costs in running the company as a going concern."

Market participants say back in the initial days of IBC, the big four consultants and specific global firms with experience in corporate restructuring were the only players in the market. Until 2020-21, lenders preferred such marquee names since the accounts being put into IBC involved large sums of money. But now, many medium- and small-sized accounts are also coming into IBC, prompting a demand for low-cost RPs, say market participants.

“In the initial days, the insolvency regime was developing, and bigger consultants had that leverage of early bird. However, with so many people and entities coming in, the leverage has also reduced considerably," said Ashish Pyasi, an independent counsel.

Also, IBBI issued new rules for fees payable to RPs. Through these rules, IBBI fixed a minimum fee payable and also introduced a framework through which RPs will get special incentives if they close the process within the scheduled time.

“The benefit of the amendment is both ways as the fee is now regulated, and there is a provision for incentive also to the professionals if the resolution is made much earlier. Of course, there is a lot of competition as insolvency practice has evolved, and it has been now six years since IBC started," Pyasi added.

A restructuring expert told Mint that domestic and smaller players will soon dominate the IBC resolution segment. “It is not viable for the global consultants to work at low fees. Instead of being resolution professionals, they would want to be advisors to potential bidders in IBC who may be willing to pay better."

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