In a significant policy shift, insolvency regulator IBBI has now allowed an Insolvency Professional Entity (IPE) to be registered as an Insolvency Professional (IP) and carry on the activity of such professionals under the insolvency and bankruptcy code (IBC).
Allowing an IPE to act as an IP will institutionalise the profession of IP and help establish better governance framework. This is expected to address the limitations posed by IP being an individual in dealing with large and complex processes requiring concurrent efforts and actions, according to IBBI.
Also, existing IPEs, after seeking registration as an IP, have been permitted to continue to provide support services to IPs.
It maybe recalled that the Insolvency and Bankruptcy Board of India (IBBI) had in June this year issued a discussion paper that sought to widen the category of persons to also allow entities (company, limited liability partnerships, registered partnership firms) to get enrolled, registered and act as an insolvency professional (IPs).
Prior to the latest move, only individuals were allowed to be registered as insolvency professionals.
IBBI was keen to allow an entity to perform the functions of IP as a single IP may not have required skills, knowledge and experience as may be required.
IBBI wants to permit juristic persons to be enrolled as IPs given that in several large corporate insolvencies, the individuals appointed as the IRP’s seek support services from Insolvency Professional Entities, Process Advisors etc.
In IBBI’s view these entities are not under a strong regulatory framework thereby impacting accountability. It is in this context that IBBI move to permit IPEs to become IPs is a major step, said insolvency law experts.
‘Welcome move’
Kumar Saurabh Singh, Partner, Khaitan & Co, said that overall movement from individual resolution professional (RP) to a corporate set up will also help in creating better credibility for RPs managing the process.
He highlighted that an IPE can now apply for registration as an ‘Insolvency Professional’ by filing Form AA under the IP Regulations. However, for such registration, the IPE and its partners/directors will have to meet the ‘fit and proper person’ criteria which is determined by IBBI considering certain qualitative and financial aspects including integrity, reputation, character, absence of convictions and restraint orders, financial solvency and net worth, Singh said.
“In our assessment the recent amendments to IP Regulations will foster collaboration amongst individual insolvency professionals to form an IPE and register as an ‘Insolvency Professional’. The increase in collaboration amongst individual insolvency professionals to form an organisational set up will definitely assist them in managing their mandates efficiently, which will ultimately improve the outcome of resolution process of corporate debtor under IBC”, he said.
Mukesh Chand, Senior Counsel, Economic Laws Practice , said IP Firms (IPE) will have better systems and governance framework and they will be better placed to handle large and complex cases. However, there are question mark on liability of partners/directors of such firm for individual cases and reigning the cost of process. “It will also be interesting to see how things move forward as few countries allow firms to act as IPs”, Chand added.
Pritika Kumar - Founder Cornellia Chambers, said that IBBI’s move to allow IPEs to register and work as IPs is a welcome move. The object of the act is to revive a business and individuals serving as IPs might be met with limitations while dealing with the multifarious issues that pop up in a company’s operations due to lack of time and, in certain cases, expertise. “IPEs usually have corporate governance and risk management structures in place and may not face such limitations due to their institutionalised nature”, she said.
IPEs are now allowed to register themselves as IPs and perform associated duties, whereas earlier the regulations only allowed them to provide support services to IPs, she added.