PremiumNew Delhi: Tightening disciplinary framework for insolvency professionals, the government has notified hefty penalties for breaches in guiding distressed businesses through bankruptcy proceedings.
Erring professionals will face a penalty of up to 25% of the fee charged by them, an order from Insolvency and Bankruptcy Board of India (IBBI) said on Wednesday.
The penalties start from a minimum of ₹50,000 or ₹100,000 depending on the breach and go up to ₹200,000 or 25% of the fee charged by the professional, whichever is higher.
IBBI is setting the benchmark for penalties so that individual insolvency professional agencies or self-regulators set up by bodies like the Institute of Chartered Accountants of India (ICAI), Institute of Cost Accountants of India and Institute of Company Secretaries of India impose penalties on a uniform manner. These agencies enrol, educate, monitor and regulate insolvency professionals. Chartered accountants, cost accountants, company secretaries and lawyers enrol as insolvency professionals.
Experts said that IBBI move seeks to ensure insolvency professionals remain compliant with the letter and spirit of IBC and conduct themselves ethically.
“Previously, the insolvency professional agencies were free to discipline their member resolution professionals by imposing discretionary penalties decided by each agency. This circular does away with this discretion and requires all agencies to adopt a uniform pattern of penalties on their member resolution professionals for the specified violations," said Charanya Lakshmikumaran, partner at law firm Lakshmikumaran & Sridharan Attorneys.
As per IBBI order issued on Wednesday, the penalty is up to ₹100,000 or 25% of the fee charged by the professional, whichever is higher in cases of failures in making proper disclosures to the insolvency professional agency. The minimum penalty, in this case, is ₹50,000. In cases, where the professional accepts assignments that involve a conflict of interest with other stakeholders, the penalty is up to ₹200,000 or a quarter of the fee charged, whichever is higher. In this case, the minimum penalty is ₹100,000. The regulator had earlier this month prohibited professionals hired as administrators of distressed companies from continuing in that role if any of their colleagues from the same consultancy represents any other party in the same case.
IBBI has specified penalties for 14 specified breaches including any violation of the charter of the insolvency professional agency. These agencies have to incorporate the same in their charter.
Insolvency professionals have to deal with several stakeholders with conflicting interests. These professionals hired by the majority lenders virtually run the distressed company during the time a revival scheme is explored under the oversight of tribunals. Their job includes admission of claims from creditors, getting the company’s assets and liabilities valued, raising finances, hiring accountants and lawyers and inviting bids from fresh investors. Their decisions have an impact on the value realised by creditors.
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