The new rule indicates IBBI’s efforts to streamline a fast-growing discipline of professional service amid instances of alleged violations by insolvency professionals
New Delhi: Insolvency professional agencies, or self-regulatory bodies of bankruptcy professionals, have to promptly recover penalties from their erring members and deposit the same in a designated fund, Insolvency and Bankruptcy Board of India (IBBI) said in an amendment to its rules.
The new rule indicates IBBI’s efforts to streamline a fast-growing discipline of professional service amid instances of alleged violations by insolvency professionals. The development is significant as these professionals play a key role in assessing the assets and liabilities of a company going through bankruptcy proceedings as well as in the admission of claims on the company by various parties and in inviting fresh investors. In July itself, IBBI suspended the practice of three insolvency professionals for terms ranging from 30 days to one year for allegedly breaching the norms.
Insolvency professional agencies are specialised entities set up by bodies like the Institute of Chartered Accountants of India (ICAI), Institute of Cost Accountants of India and Institute of Company Secretaries of India to enroll, educate, monitor and regulate the profession of insolvency professionals. They can take disciplinary action against their members on the basis of complaints received by them or on their own. Disciplinary action can also include suspension or cancellation of the membership of insolvency professionals.
The latest IBBI move is aimed at making sure that professional discipline remains a priority. “The agency shall promptly realise the monetary penalty imposed by the disciplinary committee and credit the same to the fund constituted under section 222 of the Code," IBBI said in an amendment to the model charter these agencies have to follow. The move is effective 22 July. It is in this designated fund, all fee and charges levied by IBBI is credited to.
“The amendment forces the hand of insolvency professional agency in ensuring that the penalties are realised. This improves the enforcement mechanism and works as a warning to insolvency professionals to be more careful and diligent failing which they shall have to contribute personally to the defaults or non-noncompliance of the IBBI regulations," said Anoop Rawat, partner, insolvency and bankruptcy at Shardul Amarchand Mangaldas & Co, a law firm.
According to Rajiv Chandak, partner at Deloitte India, insolvency professionals are managing insolvent companies with high value of underlying assets and that IBBI and the agencies need to penalise defaulters to set example for practitioners. Chandak explained that certain markets such as UK seeks Insolvency bonds from professionals which help the regulator in recovering such penalties and loss caused by the act of the insolvency professional.
Some experts, however, believe that complaints against professionals from unhappy stakeholders are bound to happen given the nature of the work and the evolving nature of the bankruptcy code. “We don't think the number is increasing with respect to instances of misconduct. As the IBC itself is evolving everyday, so do the mode and manner in which the insolvency professionals should conduct the affairs or perform their responsibilities. The expectation from the insolvency professionals of different stakeholders are different and the one whose expectations are not met are the one who proceeds with filing complaints against the insolvency professionals," said Daizy Chawla, senior partner at Singh & Associates, a law firm.