Insolvency regulator IBBI is keen to attain financial self-sufficiency  and wants to reduce its reliance on government’s grant-in-aid to run its operations. Currently,  IBBI’s majority of fund requirement is met from grant-in-aid received from the Centre. 

Towards this end, the insolvency regulator plans to revise upwards — double the existing levels in most cases—the fees it levies on Insolvency Professionals (IPs), Insolvency Professional Entity (IPE) and information utility (IU) among others in the ecosystem. In a significant proposal, the IBBI also proposes to introduce fees on third party service providers and professionals appointed by IPs. 

Appointing of third party experts by insolvency professionals under corporate insolvency resolution process had gained currency in recent years, leading to large fee payouts to consultants and advisors. This proposed fee levy by IBBI on outside experts engaged by IPs is expected to address regulatory gap, sources said. 

At present, the Board is meeting only about 20 per cent of its budgetary requirement from the fee income on service providers (including IPs, IPEs, IPAs, IU, RVs, RVEs and RVOs), the examinations (LIE and Valuation) conducted and other income from CIRP Form Filings and frivolous complaints.

Financial self-sufficiency

In 2021-22, the IBBI is estimated to have fallen short by ₹ 21-22 crore to reach financial self-sufficiency level, said a discussion paper issued by the regulator. 

The proposed revision in fee structure would not result in fulfilling of the current budgetary shortfall. However, as an interim measure, it would substantially reduce the dependence of the Board on grants-in-aid, the discussion paper added. The public comments on this discussion paper have to be submitted electronically by July 15.

As per the discussion paper, the registration fee of an IP is proposed to be doubled to ₹20,000 from ₹ 10,000. Also, the annual professional fee of an IP is proposed to be substantially hiked from 0.25 per cent per annum of professional fee earned in the preceding financial year to 2 per cent per annum.

The discussion paper also proposes to enhance the annual turnover fee of an IPE from 0.25 per cent to 2 per cent of turnover from services rendered in a preceding financial year.

The discussion paper has also highlighted that a period of time, the Board would be required to gradually revised the existing fees/ charges levied and/or explore other measures/ avenues to levy fees, in order to achiever financial sufficiency.

While, IBBI is currently relying on budgetary grant as its main source of funding, there is a need for gradually shifting from current grant-in-aid arrangement to a system where the Board recovers all or part of its costs through levy of fees and charges, the discussion paper noted.

It maybe recalled that the Madras High Court had in the Venkata Siva Kumar vs IBBI case upheld the jurisdiction of IBBI to levy fees and charges, including as a percentage of the annual remuneration as an IP in the preceding financial year.

‘Fees on the higher side’

Sushmita Gandhi, Partner, IndusLaw, said “While the board certainly has a host of duties and statutory functions under the Code entailing a huge expenditure and this might be a welcome revision to make IBBI more self-reliant and less dependant on government funds, but the proposed fee structure may appear to most stakeholders to be on the higher side. The doubling down on fees payable by IPs and service providers is only bound to aggravate the costs of Insolvency which is already on the rise with resolutions being marred with deep haircuts. Further, given the fact that insolvency resolution is still in its evolution stages, the Board should be mindful to not off-put the prospective IPs and service providers economically, and alternatively, the government should increase their budgetary allocations to fund the Board”.

Meanwhile, some insolvency law experts said that any increase in annual professional fees payable by IPs or annual turnover fees payable by IPEs could end up as a pass through to the committee of creditors.

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