IBBI Clarifies Fee Application, Assignment Ceilings, and Disciplinary Processes for IPs which is IPEs [Read Circular]

The Insolvency and Bankruptcy Board of India ( IBBI ), on 1st February 2024 has issued a circular clarifying the fee applications, assignment ceilings and disciplinary proceedings for the Insolvency Professionals ( IPs ) which is an Insolvency Professionals Entities ( IPEs ). The circular is being issued in exercise of the powers conferred under the provisions of section 196 of the Insolvency and Bankruptcy Code, 2016.

In September 2022, a reform aimed at boosting the efficiency of insolvency resolution processes was implemented. This change permitted Insolvency Professional Entities ( IPEs ) – which could be entities such as companies, limited liability partnerships, or registered partnership firms – to actively engage in the activities of an insolvency professional ( IP ).

The intention behind this move was to capitalise on the resources and experience within IPEs, leveraging their organisational structure to enhance the overall functioning of the insolvency ecosystem. Notably, the amendment maintained the existing regulatory framework, allowing ample time for the seamless implementation of this reform. Prior to this modification, IPEs were restricted to offering support services exclusively to IPs.

In response to feedback from stakeholders and insights gained during implementation, it is deemed essential to offer clarification on certain aspects. This is intended to enable Insolvency Professional Entities ( IPEs ) to effectively carry out their extended responsibilities. The following paragraphs elaborate on these issues and provide the necessary clarifications.

Clarification in relation to disciplinary proceedings in case of an IP which is an IPE

Given that an IPE, when acting as an Insolvency Professional ( IP ), may have multiple individuals as partners or directors, there is a need to clarify the initiation process for disciplinary proceedings in case of any contravention related to an assignment undertaken by an IP within an IPE.

Clarification: It is hereby 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:

1.  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
2. 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.

Clarification on applicability of limit on number of Assignments to an IP which is an IPE

Clause 22 of the Code of Conduct outlined in the First Schedule to the IP Regulations imposes a limitation on the number of assignments that an Insolvency Professional ( IP ) who is an individual can undertake.

With the introduction of provisions allowing IPE to act as IP, it is not considered prudent to apply any limit on the number of assignments that may be undertaken by such IPE at this nascent stage.

Clarification: It is hereby clarified that clause 22 of Code of Conduct specified in First Schedule to IP Regulations does not apply to an IP which is an IPE.

Clarification on applicability of fee structure to an IP which is an IPE

Regulation 34B within the IBBI ( Insolvency Resolution Process for Corporate Persons ) Regulations, 2016 ( CIRP Regulations ), outlines a prescribed minimum fixed fee structure and a performance-linked incentive fee for individual Insolvency Professionals ( IPs ) involved in a corporate insolvency resolution process ( CIRP ).

With the introduction of provisions allowing IPE to act as IP, it is considered prudent that IPEs have an expanded role, and their fee should be market-determined at this juncture. 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.

Clarification: It is hereby clarified that regulation 34B of CIRP Regulations does not apply to an IP, which is an IPE.

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