Insolvency regulator releases guidelines for hiring professionals during CIRP

There are a variety of self-styled advisors, who may not be qualified or regulated and that they cannot be hired as professionals to serve an ailing corporate debtor undergoing corporate insolvency resolution plan (CIRP), where the fate of a large number of stakeholders is at stake, says a draft paper by the Insolvency and Bankruptcy Board of India (IBBI).

The draft paper further says that a corporate debtor (CD), which is in stress, cannot afford to pay the advisors who may be working for profit.

The draft paper has broader guidelines on ‘professionals’ who could be hired by an insolvency professional during the CIRP. The draft paper seeks to do away with ambiguities in terms of definition of professionals, what kind of professionals can be hired and who cannot be hired.

The intention of the draft is to clarify certain questions like who a ‘professional’ is, when and how a professional should be appointed, how he can be removed; how the fee payable to a professional should be determined, etc.

Who is a professional?

The draft guidelines clarify that a person is granted right to practise a profession when s/he demonstrates her/his qualification and experience, and meet other eligibility norms, to the satisfaction of the regulator.  It further says that a professional works for a livelihood and not for profit.

The paper says that a firm, which provides a variety of services such as consultancy or advisory services or carries out certain assignments for a client, can’t be termed as a professional.

“It is not enrolled as a member of any profession; it is not regulated by a regulator of any profession; it does not render professional services under the oversight of a regulator of a profession; and it renders services for profit,” it says.

However, according to the draft paper, a firm, which is registered with the regulator of the profession for rendering the professional service, is a professional.

“The test to determine whether a person is a professional or not is whether the person is permitted by the regulator of the concerned profession to practise the profession under its oversight. If answer is yes, the person is a professional,” clarifies the paper.

The paper also defines ‘other’ professionals, who may be appointed by an insolvency professional.

“… other professional would include a company secretary, cost and management accountant, doctor, actuary, and such other professional who is regulated by the regulator of the profession. It would not include an advisor, economist, banker, or a sociologist, though many of them are professional in their approach and conduct,” say the draft guidelines.

When a professional can or cannot be appointed

On the question when a professional is not eligible for appointment, the draft paper says the insolvency professional should not engage or appoint any of his relatives or related parties, for or in connection with any work relating to any of his assignment.

“There is a general provision that an IP should not have any conflict of interests in whatever he does. A professional must also not have any conflict of interests. He may not be appointed if he is related to the corporate debtor or the insolvency professional,” it clarifies.

It also lays down situations when a professional should be appointed. A professional should be hired only when it is absolutely necessary and such hiring should be at the minimum cost, says the draft paper.

“The IP must first use the resource and manpower available with the corporate debtor. It may hire a professional only when manpower/resources available with the CD are inadequate and the IP finds it necessary to have services of a professional. For example, the CD may have personnel qualified in law, who can help him in legal work. They, however, cannot appear before courts of law. Therefore, the IP may engage an Advocate for appearances before the court,” it says.

Fee

The draft paper on many places stresses on the need for the IP to be very discreet with cost of the CIRP and hence mentions specifically to keep the expenses at reasonable levels.

“The regulations require that an IP must endeavour to ensure that all costs towards the insolvency resolution process costs, liquidation costs, or costs of the bankruptcy process, as applicable, are not unreasonable and he should disclose all such costs to all relevant stakeholders and therefore, the IP must justify the cost of professional. In terms of circular, the bill for services shall be submitted by the professional and be paid to his account,” it says.

The draft guidelines will be open for public comments before the changes suggested are incorporated into the IBC law.