Corporate insolvency: IBBI proposes model fee structure for insolvency professionals

In an apparent bid to reduce the avoidable litigation around fixing the fees of an Insolvency Professional (IP) in the corporate insolvency process, the insolvency regulator IBBI has proposed a model fee structure for such professionals. 

The introduction of a model fee structure — which covers both a minimum fixed (floor) fee and a performance linked fee — is expected to nudge IPs to facilitate timely resolution and value maximisation, through their efficient performance and conduct, said a discussion paper issued by Insolvency and Bankruptcy Board of India (IBBI). Public comments can be electronically submitted to IBBI by June 30.

The maximum performance-linked fee that would be allowed will be ₹5 crore. The performance linked fee structure for timely completion of CIRP would be a specified percentage of actual realisable value, subject to maximum amount not exceeding ₹5 crore.

The initiative to introduce a model fee structure comes in the wake of the regulator receiving several directions from the Adjudicating Authority (AA) requiring it to fix the fee payable to an interim resolution professional/ resolution professional (RP) in cases involving disputes between IRP and the applicant regarding fee, and disputes between the RP and Committee of Creditors regarding fee/ exorbitant fees claimed as interim resolution process cost (IRPC).

IBBI has so far not specified any indicative table of fees linked to any parameter, which would determine the fees payable to IRP/RP in Corporate Insolvency Resolution Process (CIRP).

Besides introducing a fixed fee structure (which is linked to quantum of claims admitted) and performance linked incentive fee for timely resolution and value maximisation, the IBBI discussion paper also provides for an escrow account mechanism to ensure certainty of payment of fees to IP. 

Commenting on the move, Neeraj Prakash, Partner, Chadha & Co, a law firm, said “the discussion paper is the first step to address the issue of fee for IPs. Having a fixed fee structure and performance-linked incentives for timely resolution and value maximisation, along with an escrow mechanism for timely payment of fee, will remove the subjectivity on this issue and result in increased efficiency of the resolution process”.

He highlighted that the issue of fixing the remuneration of an IP and timely payment thereof has been a contentious and time consuming affair. Often, it leads to resorting to litigation before the Adjudicating Authority (i.e. the NCLT). In the absence of clearly defined guidelines and parameters, the transparency and reasonableness of the fee has also been questioned, he added. Although the fiduciary duty of fixation of fee of an IP has been cast upon the applicant, Adjudicating Authority or committee of creditors under the Regulation, clearly spelt out parameters are absent. Therefore, it is important to have clear guidelines in this regard, he added.

Pritika Kumar, Founder - Cornellia Chambers, a law firm, said the proposed amendment could help reduce disputes between insolvency professionals and the committee of creditors. The resolution process will also become more efficient and will help maximise the value of the corporate debtor and ensure that the fess is paid to the insolvency professional on time, she added. 

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