What reform has insolvency regulator IBBI introduced for IPEs?
The IBBI has now allowed an Insolvency Professional Entity (IPE) to be registered as an Insolvency Professional (IP) and carry on the activity of such professionals under the insolvency and bankruptcy code (IBC). This is a big policy shift as earlier only individuals were permitted to register and function as an IP in India.
Although the IBC provides for a wider definition of person which includes both the natural as well as juristic persons who can act as IPs, the regulations had limited ambit of specifying only an individual i.e., a natural person to get enrolled, registered and act as an IP. This has now been taken care of by regulation change and allowing IPEs to act as IPs. This policy shift is also significant as only few countries (now India included) have allowed firms to undertake role of IPs.
So how will this move be a game changer and who could benefit?
Allowing an IPE to act as an IP will institutionalise the profession of IP and help establish better governance framework. IPEs will have better systems and be better placed to handle large and complex cases. This is expected to address the limitations posed by IP being an individual in dealing with large and complex processes requiring concurrent efforts and actions.
Also, this will foster collaboration amongst individual insolvency professionals to form an IPE and register as an ‘Insolvency Professional’. The increase in collaboration amongst IPs to form an organisational set up will definitely assist them in managing their mandates efficiently, which will ultimately improve the outcome of resolution process of corporate debtor under IBC.
What had prompted IBBI to introduce this reform?
IBBI was keen to allow firms to perform the functions of IP as a single IP (as an individual) may not have required skills, knowledge and experience as may be required.
IBBI wanted to permit juristic persons to be enrolled as IPs given that in several large corporate insolvencies, the individuals appointed as the IRP’s seek support services from IPEs, Process Advisors etc.
In IBBI’s view these entities are not under a strong regulatory framework thereby impacting accountability. It is in this context that IBBI move to permit IPEs to become IPs is a major step.
How was this reform put in place?
Insolvency and Bankruptcy Board of India (IBBI) had in June this year issued a discussion paper that sought to widen the category of persons to also allow entities (company, limited liability partnerships, registered partnership firms) to get enrolled, registered and act as an insolvency professional (IPs). As a first step in this process of allowing such entities to perform role of IPs, the regulator has allowed IPE to act as an IP.
How have stakeholders reacted to this development?
Most stakeholders have welcomed the IBBI move as an overall movement from individual resolution professional (RP) to a corporate set up will also help in creating better credibility for RPs managing the process. However, some have raised question mark on the liability of partners/directors of such firm for individual cases and reigning the cost of process.
Are there any safeguards or conditions to monitor the working of IPEs?
Yes. The latest reform provides that an IPE can now apply for registration as an ‘Insolvency Professional’ by filing Form AA under the IP Regulations. However, for such registration, the IPE and its partners/directors will have to meet the ‘fit and proper person’ criteria which is determined by IBBI considering certain qualitative and financial aspects including integrity, reputation, character, absence of convictions and restraint orders, financial solvency and net worth.
Can IPEs now continue to provide support services to IPs?
Yes. IPEs have been allowed to not only perform the associated activities of an IP, but they can also continue providing support services to IPs as well.
How has IBBI performed so far?
In the six years since it’s enactment in 2016, the IBC — which is having a remarkable journey so far-has many positives for the economy. It is delivering the goods by a far mile when compared to the time consuming and low recovery rate processes like Lok Adalats, SARFAESI and DRTs.
However, the elephant in the room is still the high level of ‘haircuts’ that lenders are being forced to take to make a resolution successful in IBC.
But is IBC too expensive a medicine to administer to address stress of corporates and ensure their recovery? One thing is for sure — policymakers are gaining experience and slowly but surely closing the gaps to ensure that IBC does not end up being gamed by corporates. In sum, IBC has now evolved into a future ready legislation to take Indian economy to greater heights.