Insolvency regulator IBBI has brought in two key changes in the regulations around fees charged by resolution professionals (RPs). It has stipulated that RPs cannot accept or share any fees with the other professionals and other support services providers appointed under the CIRP/Liquidation process.
The other big change is the introduction of a minimum fixed fee (per month) structure that would be linked to the quantum of claims admitted. The minimum fixed fee per month ranges from ₹1-5 lakhs depending on the quantum of claims admitted. This fixed fees can be increased by the Committee of Creditors (CoC) depending on the cases with reasons recorded in writing.
PLI for value maximisation
A concept of performance linked incentive fee for timely resolution (akin to success fee) has also been introduced, with a cap of ₹ 5 crore.
The IBBI has also now allowed performance linked incentive fee for value maximisation to be paid to the RPs at the rate of one per cent of the amount by which the “realisable value” is higher than the liquidation value. The performance linked incentive fee for value maximisation would be available — after approval of the resolution plan by the Adjudicating Authority — on commencement of payment to creditors by the resolution applicant.
Experts welcome changes
Commenting on the latest IBBI move, Siddharth Srivastava, Partner, Restructuring & Insolvency, Khaitan & Co, said this is a very important move since the issue of RP fees has been a matter of debate and negotiation for quite some time. “The idea behind keeping a fixed fees and performance linked success fees is to incentivise the RP to complete the resolution process in a time bound manner. It is noteworthy that no performance linked fee is payable if the resolution process takes more than 330 days”, Srivastava said.
Neha Naik, Associate Partner, Phoenix Legal said that the latest changes would act as a motivation for RPs to target for a timely resolution with maximisation of the asset value, which may help in light of the unreasonable delays observed in conclusion of CIRPs.
Mukesh Chand, Senior Counsel, Economic Laws Practice said that right from December 2016, when the Code came into force, the fee chargeable by a RP has been a subject matter of debate on account of instances of very high fee paid in some cases. In some instances, even NCLTs had to intervene to settle the fee of insolvency professionals where enterprise value was very low as compared to fee paid to IP. There were also instances where the fee quoted was extremely low however this was being compensated by way of other related fee to a professional engaged by IP, he noted.
Simran Nandwani, Resident Counsel - Cornellia Chambers, said that the introduction of a minimum fee structure for IPs was long due, and the same had been observed by the Adjudicating Authority (AA) in several instances. “This is a welcome move which will help in ensuring transparency in the fees paid to the IPs. It will also help save the time of the AA who is often burdened with the issue of fixing the remuneration of an IP when the applicant or the Committee of Creditorsfails to do so”, Nandwani said.