Insolvency regulator IBBI has proposed to introduce minimum qualifications, experience and other criteria for appointment of directors of the Insolvency Professional Agency (IPAs), which are the frontline regulators of Insolvency Professionals (IPs).

It also wants the Governing Board of IPAs to do periodic self-evaluation on three dimensions of board composition and quality, board meetings and procedures, and board functions and development.

These steps were proposed in a discussion paper that the regulator has issued for public comments by October 5.

Currently, the insolvency professional has two-tier regulatory architecture with the Insolvency and Bankruptcy Board of India (IBBI) -- as the principal regulator, and the three Insolvency Professional Agencies (IPAs)-- as frontline regulators.

IPAs monitor the conduct and performance of their members and also initiate appropriate action against their members who do not comply with the provisions of the IBC. India currently has over 2,000 registered IPs.

It may be recalled that IBBI had mandated that an IP shall obtain an authorisation for assignment (AFA) from the IPA before accepting or undertaking any assignment as interim resolution professional, resolution professional, liquidator, bankruptcy trustee, authorised representative or in any other role under the Code.

IBBI is of the view that issues like appointment of members of the Governing Board and performance of the Governing Board need to be addressed by making amendments in the regulations in order to improve the effectiveness of the IPAs.

Aseem Chawla, Managing Partner, ASC Legal, a law firm, said that the discussion paper recognises the dire need and also appreciates that a pervasive approach is needed to ensure good governance of the IPs.

“The paper suggests an oversight mechanism through Insolvency Professional Agencies and therefore prescribes the norms and other descriptions of governance for such IPAs to begin with such as requisite qualifications of directors; board functioning of IPAs. This is an encouraging step and the need of the hour to fortify the ethical standards associated with IP practice", he said.

Souvik Ganguly, Managing Partner, Acuity Law said that insolvency professionals are one of the main pillars on which the IBC has been built upon. The insolvency professionals are required to be registered with an IPA. The proposed amendment to the model by laws intends to further strengthen the role of the IPA by introducing the concept of shareholders' of the IPAs having the right to nominate a director and also trying to bring in qualitative changes in the way the governing board of the IPAs work.

This is a step in the right direction as a governing board of an IPA comprising of people from diverse backgrounds/experience will be better suited to guide the IPA and its members (that is: insolvency professionals) to deal with the new, varied and dynamic business situations, he said.

Further, regular meetings of the Governing Board of the IPA will lead to better exchange of thoughts/ideas between the strategic leadership team of the IPA which will certainly benefit the profession of "insolvency professionals", he added.

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