Applicability of the Limit on the Number of Assignments Applies to IPs Who are Individuals, not IPEs | IBBI clarifies

CIRCULAR NO. NO. IBBI/IPE/64/2024, Dated 01.02.2024

Earlier, in September 2022, the insolvency professional entities (IPEs) were authorised to operate as insolvency professionals (IPs), leveraging their structure and resources, to streamline insolvency resolution processes. This expansion aimed to enhance efficiency in the insolvency ecosystem while maintaining the existing regulatory framework.

Based on the feedback received from stakeholders and experiences encountered during implementation, The IBBI has considered it imperative to provide clarity on a few areas to facilitate IPEs to undertake their expanded role. These issues and clarification thereupon have been elaborated on in the ensuing paragraphs:

Clarification w.r.t. Disciplinary Procedure for Insolvency Professional Entities (IPEs) Acting as IPs

Sections 217 to 220 of the Insolvency and Bankruptcy Code, 2016 (Code), along with relevant regulations, outline the process for handling grievances, complaints, and disciplinary actions against insolvency professionals.

These regulations also specify eligibility requirements, liability, and derecognition criteria for insolvency professional entities (IPEs). Since an IPE acting as IP would have multiple individuals as its partners or directors, a need was felt to clarify on the initiation of disciplinary proceedings in case of any contravention in relation to an assignment undertaken by an IP which is an IPE.

IBBI’s clarification: The IBBI clarified that in case the assignment is undertaken by the IP, which is an IPE, the show-cause notice under regulation 11 of the IBBI (Inspection and Investigation) Regulations, 2017 shall be issued to:

(a) Its partner or director, as the case may be, who is an IP and was authorised to sign and act on behalf of it for the respective assignment; and/or

(b) The IPE if in the opinion of the Board, there are either repeated instances of contravention against one or more partners or directors of the IPE or instance of systemic failure on the part of such IPE.

Comments:

By specifying the process for initiating disciplinary proceedings in cases where an IP is associated with an IPE, the IBBI aims to address potential conflicts of interest and uphold professional standards.

This clarification provides clarity on the roles and responsibilities of partners or directors within IPEs, emphasizing accountability for their actions in relation to assignments undertaken. Overall, this move strengthens regulatory oversight and enhances confidence in the insolvency resolution process.

IBBI Exempts Insolvency Professional Entities (IPEs) from Assignment Limits Imposed on Individual IPs

Clause 22 of the Code of Conduct outlined in the First Schedule to the Insolvency Professionals Regulations imposes a limit on the number of assignments for individual IPs.

As per the clarification on clause 22, an insolvency professional may, at any point of time, not have more than ten assignments as a resolution professional in the corporate insolvency resolution process, of which not more than three shall have admitted claims exceeding one thousand crore rupees each.

However, with the introduction of provisions enabling insolvency professional entities (IPEs) to function as IPs, it was deemed unwise to impose such restrictions on the number of assignments they may undertake at this initial stage.

IBBI’s clarification: The IBBI has clarified that clause 22 of the Code of Conduct specified in First Schedule to IP Regulations does not apply to an IP which is an IPE.

Comments:

This clarification acknowledges the potential for IPEs to handle a larger volume of assignments, thus facilitating more efficient and effective resolution processes.

While individual IPs are subject to constraints on the number and scale of assignments they can undertake, IPEs, with their broader resources and capabilities, are now afforded greater flexibility in managing their work.

IBBI Clarifies on Fee Structure for Insolvency Professional Entities (IPEs) Acting as IPs

Regulation 34B of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (CIRP Regulations) mandates a minimum fixed fee structure and performance-linked incentive fee for individual insolvency professionals (IPs) in corporate insolvency resolution processes (CIRP).

However, with the introduction of provisions allowing IPE to act as IP, there’s a recognition of IP’s expanded role and institutional framework. Also, given their institutional framework, IPEs are better placed to negotiate their fees commensurate with their pool of in-house resources and diverse range of services offered by them as compared to an individual IP.

IBBI’s clarification: The IBBI has clarified that regulation 34B of CIRP Regulations does not apply to an IP, which is an IPE.

Comments:

By exempting IPEs from the fee regulations applicable to individual IPs, IBBI acknowledges the enhanced capacity of IPEs to negotiate fees reflective of their broader resources and comprehensive service offerings. This recognition underscores the importance of facilitating a more flexible and tailored approach to fee arrangements, aligning with the diverse capabilities and institutional frameworks of IPEs.

Concluding remarks:

In conclusion, the recent clarifications issued by the IBBI represent significant steps towards enhancing the regulatory framework and efficiency of insolvency resolution processes. By addressing key issues such as disciplinary procedures, assignment limits, and fee structures for Insolvency Professional Entities (IPEs) acting as IPs, the IBBI aims to promote greater transparency, accountability, and flexibility within the insolvency profession.

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