IBBI imposes 0.25% regulatory fee on corporate insolvencies

K.R. Srivats | | Updated on: Sep 21, 2022

| Photo Credit: Avijit Sadhu

New levy to apply on CIRPs post October 1; also levies 1 per cent ‘regulatory fee’ on third-party service providers and professionals appointed by IPs

Insolvency regulator Insolvency and Bankruptcy Board of India (IBBI) has imposed  a regulatory fee of 0.25 per cent on corporate insolvency resolution plans (CIRP) as part of its overall efforts to shore up its finances and reduce dependence on the Centre’s grants-in-aid.

The regulatory body has  also imposed a 1 per cent regulatory fee on third-party service providers and professionals appointed by IPs. 

The regulatory fee of 0.25 per cent — which will come into effect from October 1 — will be applied on the realisable value to creditors under the resolution plan, and only in those cases where the amount of the resolution plan exceeds the liquidation value, said the IBBI in an executive order issued on Tuesday.

It may be recalled that the IBBI had, in June this year, issued a discussion paper on this issue and sought public comments on the same. 

REGULATORY TAX

Several experts on conditions of anonymity said that the latest IBBI move to impose a regulatory fee smacks of a regulatory tax and is inherently fraught with “conflict of interest”. This will put a burden on industry and ultimately on the consumer, they said, adding that it was unfair to expect regulatory fees for a regulatory body to perform sovereign functions. 

A back of the envelope calculation showed that if the average aggregate corporate insolvency resolution plan approved every year through the IBC is about ₹40,000 crore (it has been over this level in the last two years), then the IBBI will end up pocketing at least ₹100 crore under this head. This is going to be a huge windfall for the regulator, who is now recording receipts of about ₹5 crore a fiscal, said some insolvency experts.

Mukesh Chand, Senior Counsel, Economic Laws Practice, said it is not clear whether such regulatory fees will form part of CIRP cost, and how it will be placed in the waterfall mechanism under the Code, which is a statutory provision.

Pritika Kumar, Founder, Cornellia Chambers, said the IBBI only meets 20 per cent of its operational expenses from the fee it levies, and the rest is met by grants received from the Central government. “Through this amendment, the IBBI plans to impose an extra regulatory fee on the creditors and the Insolvency Professionals,” she said.

The IBBI’s expenditure has only increased through the years, and this trend will continue with the introduction of pre-pack and cross-border insolvency mechanisms. This fee will ensure that this anticipated increase in the expenditure of the IBBI is covered and it will also allow the IBBI to steadily reduce its reliance on Central government funds, said Kumar.

Published on September 21, 2022
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