IBBI proposes a minimum fixed fee structure for Insolvency Professionals

Discussion Paper on Remuneration of an Insolvency Professional, Dated: 09.06.2022

The IBBI has floated a discussion paper on the remuneration of Insolvency Professionals acting as Interim Resolution professionals (IRP)/ Resolution Professionals (RP). The paper suggests changes to the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

IBBI stated that it has been receiving several directions from the AA, requiring it to fix the fee payable to IRP/ RP in cases inter-alia involving disputes between IRP and applicant regarding fee, and disputes between RP and CoC regarding fee/ exorbitant fees claimed as interim resolution process cost (IRPC).

The Board stated that keeping in view the directions of the AA and the Appellate Authority as received from time to time, the Board had also laid down internal guidelines for dealing with such specific directions in relation to fixing the fee of an IP and/or expenses incurred on or by him in the conduct of a CIRP.

Considering the directions of AA and Appellate Tribunal, the concerns raised by a leading bank on the cost escalations post initial engagement sought by IPs at lower quotes, and to reduce the avoidable litigations regarding the fixation of fees of IP in CIRP, the IBBI has considered expedient to specify model fee structure. IBBI further stated that there is a need to nudge IPs, for facilitating timely resolution and value maximization, through their efficient performance and conduct.

The paper covers the following issues and proposes key changes accordingly as under:

Issue I: Components of fee of an IP in CIRP

(a) Fixed Fee Structure

The Board has proposed that the fixed fee structure would be the minimum (floor) fees payable to the IP, and applicants/CoC shall remain free to consider the higher amount of fees for IP, depending on the merits of the case. The fee for Insolvency Professional in CIRP shall be as under:

(i) For quantum of claim admitted is up to Rs. 50 crore; the minimum fixed fee shall be Rs. 1.5 lakhs per month.

(ii) For quantum of claim admitted more than Rs.50 crore but up to Rs.100 crore; the minimum fixed fee shall be Rs. 2 lakhs per month.

(iii) For quantum of claim admitted more than Rs.100 crore but up to Rs.500 crore; the minimum fixed fee shall be Rs. 2.5 lakhs per month.

(iv) For quantum of claim admitted more than Rs.500 crore but up to Rs.1,000 crore; the minimum fixed fee shall be Rs. 3 lakhs per month.

(v) For quantum of claim admitted more than Rs.1,000 crore but up to Rs. 2,500 crore; the minimum fixed fee shall be Rs. 3.5 lakhs per month.

(vi) For quantum of claim admitted more than 2,500 crore but up to Rs.10,000 crore; the minimum fixed fee shall be Rs. 5 lakhs per months.

(vii) For quantum of claim admitted more than Rs.10,000 crore; the minimum fixed fee shall be Rs. 7.5 lakhs per month.

(b) Performance-linked Incentive Fee for timely resolution

The IBBI has proposed a variable fee structure for IP who has completed CIRP on time. The variable fee structure shall be as under:

(i) For completion of CIRP within 180 days; the fee shall be 1% of the actual realisable value

(ii) For completion of CIRP in more than 180 days but up to 270 days; the fee shall be 0.75% of the actual realisable value

(iii) For completion of CIRP in more than 270 days but up to 330 days; the fee shall be 0.5% of the actual realisable value

(iv) For completion of CIRP more than 330 days; the fee shall be 0.00% of the actual realisable value

(c) Performance-linked Incentive Fee for value maximization

IBBI proposed that variable fee calculated at the rate of 1% of the positive difference between the actual realisable value and fair value subject to a maximum amount not exceeding to Rs.5 crore, be considered as a reasonable amount for incentivising IPs who have facilitated the value maximisation. However, said performance-linked fee is indicative in nature, and CoC may devise any other incentive structure, or it may decide not to give such incentive.

Issue II: Having an escrow account mechanism for payment of a fee to the IP

IBBI stated that in addition to fixation of fees, the applicant/CoC, being the beneficiaries of the services of IP are also bound to ensure that amounts payable to IP are in fact paid. It, therefore, becomes necessary to provide an escrow account mechanism to ensure certainty of payment of fees to IP.

Experts are of the view that the discussion paper is the first step to address the issue of charges for IP. Having a fixed fee structure and performance-linked incentives for timely resolution and value maximization along with an escrow mechanism for timely payment of fees, will remove subjectivity on the issue and consequently increase the efficiency of the resolution process.

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