Corporate Insolvency: IBBI may rein in engagement of third party consultants

Insolvency professionals appointed under the Insolvency and Bankruptcy Code (IBC) may not find it all that easy to contract out their duties to third party consultants or advisors (including non Insolvency Professional Entity) during corporate insolvency resolution process (CIRP) if the latest IBBI discussion paper is anything to go by.

The Insolvency and Bankruptcy Board of India (IBBI), which has released the discussion paper on ‘Engagement of “professionals” in a corporate Insolvency Resolution Process’, has invited public comments on several questions including whether only a person having an authorisation from the regulator of a profession to practice the profession may be appointed as a “professional” by an IP in a CIRP.

Public comments have been sought by January 8 as to which professionals other than accountants and lawyers, who are allowed under IBC, may be appointed as CIRP. The discussion paper has, among other things, sought views on how should the fee payable by a professional be determined and should there be a cap on the fee payable to a professional.

IBBI has also sought public comments on how should the conflict of interests, if any, of a professional be addressed.

Prelude to IBBI

Many corporate observers see this discussion paper as a prelude to IBBI reining in on appointment of third party consultants or advisors by IPs.

Interestingly, the discussion paper has noted that a firm, which provides a variety of services such as consultancy or advisory services or carries out certain assignments for a client, can’t be termed as a professional. However, a firm, which is registered with the regulator of the profession for rendering the professional service, is a professional, the discussion paper has said.

Rajiv Chandak, Partner, Deloitte India, said that Insolvency Professional Entity (IPE) is evolving concept and such entities should be allowed to undertake all types of advisory work in a stressed situation under insolvency and outside of insolvency. This will go long way in making IPE sustainable, he said.

Aseem Chawla, Managing Partner, ASC Legal, said: “One of the moot question which the discussion paper throws up is the engagement of a professional services entity in the entire CIRP process and therefore the relationship between the IP and such entity. If an IP is associated in some manner with such entity what is the role play or the locus standi of such entity. This aspect should be weighed seriously and a mature debate is required”

Sushmita Gandhi, Partner, Induslaw, a law firm, said that the new discussion paper released by IBBI attempts to put a bracket on professionals who can be engaged by Resolution Professionals during the CIRP process. “The criteria for determining a professional seems to exclude advisors/consultants who operate for profit rather than for livelihood, and who are not regulated by any regulator”, she said.

Souvik Ganguly, Founder & Managing Partner, Acuity Law, said: “My understanding is that an interim resolution professional or resolution professional cannot outsource his regular work to ‘other professional’”.

However, if the “other professional” is required by the resolution professionals for some specialised function to keep the corporate debtor as a going concern or to manage the business of the corporate debtor, then the resolution professional should have all the rights to appoint such “other professional” through a transparent but quick process, he said.