Insolvency professionals should be given enough free hand for engagement of professionals: IP body

The Insolvency and Bankruptcy Board of India (IBBI) in December 2020 has sought suggestions from stakeholders on the issue of engagement of professionals by an insolvency professional (IP) in a corporate insolvency resolution process (CIRP).

Delhi Study circle of Insolvency Professionals, a group of Insolvency Professionals for knowledge sharing, developing best practices and supporting the professional practice inter se, has drafted its comments on the issue.

Here’s the feedback on the discussion paper on Engagement of Professionals by the Delhi Study circle of Insolvency Professionals.

Whether the term ‘Professional should be defined?

If yes, then in what manner? Majority view was that the term “Professional” should not be confined to professionals like CA, CS, CMA. Requirements may differ across industries and business segments. Restricting the scope of this provision may adversely affect the going concern status, preserving the value of assets of the corporate debtor (CD), compliance with laws applicable to the CD and adherence to the prescribed timelines. Since IP is responsible for all the compliances, appointment based on need and relevance should be left to the professional judgement of the IPs. However, some participants were of the view that definition should be broad enough and inclusive to ensure that specific requirements of all types of CD may be covered.

Whether term ‘Other Professional” should be defined?

A predominant majority voted against defining and restricting the term “Other Professional”. IPs must be at liberty to take assistance of the person for keeping the going concern status of the CD during CIRP and for compliances.

Whether timing of appointment of ‘Professional’ and/or ‘other professional’ should be regulated?

A majority view was that IPs should be at the liberty to make need-based hiring. Existing regulations sufficiently address the requirement of transparent process, reasonable fee, avoiding conflict of interest etc. Hiring needs are to be decided on case-to-case basis depending on the requirement of a CD

Whether selection, identification and/or removal of such professional should be regulated?

A predominant majority voted against the idea of regulating the selection, identification and/or removal process of such professional.

Whether fee, term and eligibility of such professionals required to be regulated?

Majority was against regulating the fee, term and eligibility for selection of professionals. Some members were of the opinion that since IPs are highly regulated, a framework of to regulate other professionals will help ease pressure on IPs for performance of such other professionals. Other professionals may then be appointed from among the empanelled professionals with the IBBI and IPAs.

Should EOI/quotes be invited?

Majority was of the view that transparent process for appointment and fee fixation should be adopted but not necessarily through advertisement for EoI. That would add to the cost and delay. The idea of empanelment with of professionals with IBBI/IPA was endorsed so that IPs can choose among empanelled persons and regulator can regulate such empanelled persons.

Should model contract be developed?

A predominant majority favoured the idea of development of standard operating procedures and drafts contracts be developed by IBBI/IPA for guidance of the IPs, with freedom to tailor it for specific requirements but not in the form of regulations.

Whether COC should have any say in these matters?

Majority members dissented for the same as COC say would result in conflict of interest and independence.

Poll Results

Existing regulations (including the Code of Conduct) are sufficient to deal with the situation of any mala-fide appointments by the IPs. The mechanism for inspection, investigation, Disciplinary Committee, pro-active monitoring and penal action by IBBI are sufficient to deter the IPs from breaching the provisions of Code and Regulations. IPs need not be saddled micromanagement regulations. IPs are already regulated. So, IPs should be given enough space for need based hiring.