BackLiquidators can't club asset sales, cash deposits to calculate their fees: IBBI
The clarification comes in view of different interpretations taken by liquidators while computing their fees, resulting in variations across distressed companies and in some cases leading to investigations into the affair
PremiumNew Delhi: Liquidators of insolvent companies cannot club the asset sale proceeds of the company with its liquid assets while computing the fee for their services as it leads to excessive remuneration, according to an order from bankruptcy rule maker Insolvency and Bankruptcy Board of India (IBBI).
The regulator explained in its order issued late on Thursday that separate fees have been specified as a share of the amounts realised from asset sale and as a share of the liquid assets distributed to stakeholders. Of these, managing to sell the assets of the company is eligible for a higher fee. These two cannot be clubbed.
The clarification comes in view of different interpretations taken by liquidators while computing their fees, resulting in variations across distressed companies and in some cases leading to investigations into the affair.
IBBI prescribes the fee in different slabs taking into account how big and how soon the amounts realised from the asset sale and the amounts not realised by him are distributed to the stakeholders.
The regulator sought to clarify in the order that the liquidator's fee from asset realisation is to be computed as a share of the proceeds of sale or realisation of assets which are not liquid. The liquidator is not entitled to a fee on the realisation of liquid assets. On such liquid assets, they can only claim a fee on its distribution to stakeholders, which is at a lower rate.
The regulator made it explicit in its order that such liquid assets, encashing of which cannot be taken as 'realisation' for computing fee at a higher rate, included cash and bank balance including term deposit, mutual fund, quoted share available at the start of the liquidation process after exploring corporate restructure.
IBBI also sought to bring clarity on what are the other costs which are to be excluded from the amounts realised while computing the liquidator's fee.
The regulator said that in a few cases, liquidators only exclude the process cost from the realised value of assets to figure out the net value of realised assets, a part of which forms their fee. They do not exclude the "cost incurred in preserving and protecting the assets of the corporate debtor, and running the corporate debtor as a going concern" to calculate the net realised value, IBBI said.
Also, interest payment on certain interim finance mobilised to complete the process is to be excluded. These exclusions would mean the net realisable value of illiquid assets would be lesser for the purpose of computing the liquidator's fee.
IBBI has been trying to streamline the functioning of debt resolution professionals and liquidators including by highlighting the ethical practices to be followed. The regulator has also been proactive in initiating disciplinary action against erring professionals given the key role they play in addressing the problem of bad loans in the corporate sector.
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