A circular by the Insolvency and Bankruptcy Board of India on fee and other expenses incurred for the Corporate Insolvency Resolution Process (CIRP) provides that one of the ways of charging fees can be success or contingency fee “only to the extent that it is consistent with the requirements of integrity and independence of insolvency professionals.”
“The structure of fee during CIRP is not provided in the regulations. The fee shall be fixed by the applicant and the same shall be paid as CIRP cost to the extent ratified by the Committee of Creditors (CoC). But for liquidation, if the CoC does not fix the fee then it is paid according to the percentage of recovery proved in the regulations,” said Manoj Kumar, partner, Corporate Professionals.
Concerns are being raised in the rapidly growing, lucrative segment that the practice could pose a hindrance to carrying out the process in a fair and ethical manner.
“It can take away the focus of the RP from the majority of his work, which is running the stressed company. More importantly, they can find the motivation to leak information and try to get someone to take it,” a senior IBC expert said. “There is concern that by charging such fees, the RP might forego the concerns of creditors. But RP is only a conduit between the committee of creditors and an acquirer, and cannot make any decision,” a senior analyst said.
There are more than 2,700 registered insolvency professionals in the country. The ways in which they are remunerated includes a time-based charging, prospective fee — up to a cap — fixed fee or percentage-based charging.
“It is difficult to get confirmation of CoC for success fee always. Also most of the RPs don’t want to take a risk and wants fixed regular income,” Kumar said.
The conduct of resolution professionals has come under scanner of late with IBBI initiating action in many cases. A disciplinary committee order recently found the professional and the CoC had reached an arrangement in contravention of IBC guidelines.
The order currently being challenged in the High Court said: “There is understanding between CoC and RP to contravene a law and willingness to remedy the situation only if they are caught.
Thus, the professional has deliberately compromised his independence.”
The IBBI is taking a long-term view to remedy the situation by training fresh batches of professionals through its graduate insolvency programme. While this course requires a person to be a graduate to qualify for entrance, the IBBI is soon going to launch a five-year national insolvency programme for students who pass out Class 12.
“We are grooming the younger lot. Ethically also, we feel they will be
of higher standard and increase competition in this profession,” said M S Sahoo, chairman of IBBI.