NEW DELHI: To avoid delays in the appointment of insolvency professionals (IPs) during the bankruptcy process, the government has come out with a fresh set of guidelines that mandate Insolvency and Bankruptcy Board of India (IBBI) to define the eligibility criteria for the IPs besides preparing a panel of IPs that can be appointed as resolution professionals, liquidators or bankruptcy trustees.
The norms said that IPs will have to submit expression of interest to include their names in the panel. Once the consent is submitted, the IPs will not be allowed to refuse an assignment unless otherwise permitted by the National Company Law Tribunal (NCLT) or Debt Recovery Tribunal (DRT) or the IBBI.
“Any refusal on being appointed by the adjudicating authority, without sufficient justification, will be treated as deviation from consent and name will be removed from panel for six months,” the circular said. Experts said that the consent-based panel essentially gives freedom to IPs to opt in, but also introduces accountability at a point where the framework previously had none.
To promote better handling of the insolvency cases, the norms stated that IPs can pick up sectors in which they have gained specialisation under the IBC. If an IP has handled five manufacturing insolvencies and zero financial services cases, that track record is vital when a NCLT or DRT is appointing for a distressed NBFC.
Further, the guidelines have addressed a long-standing demand of the IPs by allowing them to enlist in the panel based on their zone and bench. “Having an IP appointed to a bench miles away from the corporate debtor’s actual operations is a logistical nightmare and it completely derails everything from taking custody of records to coordination with local counsel,” said an insolvency expert.
Additionally, the guidelines roll out a scoring system for the appointment of IPs. The eligible IPs included in the panel will be sorted based on the volume of their ongoing assignments. In instances where two or more IPs get the same score, they will be placed in the panel in the order of date of their registration with the board. The IP registered earlier will be placed above the IP registered later, it said.
“The adjudicating authority may pick up any name from the panel for a CIRP (corporate insolvency resolution process), liquidation process, insolvency resolution process or bankruptcy process relating to a corporate debtor and personal guarantor to corporate debtor, as the case may be,” the circular said.
Experts said that the norms are a response to a problem that has been visible in practice for some time. “Under the earlier framework, the identification of an IP would begin only after a matter was admitted which essentially meant tribunals were working from a database that had no real-time relationship with who was actually available. Names would come up for recommendation where the professional was already stretched across several assignments, or where the authorisation had lapsed, or where the person had simply moved on,” said Vishwas Panjiar, Managing Partner, SVAS Business Advisors LLP.
However, some IPs have expressed apprehension around the guidelines as they don’t take into account the practical challenges faced by the IPs, especially in cases where they have to refuse assignments. There are also concerns that if the IBBI penalises legitimate refusals too harshly, IPs will simply start playing safe and stay off the panels entirely, which defeats the whole purpose of creating an active pool.
Source: The Financial Express
