IBBI Issues Clarification Regarding Conduct Of Process By Insolvency Professionals
The Insolvency and Bankruptcy Board of India (“IBBI”) has issued a circular dated 01.02.2024, intimating measures for facilitating efficient conduct of the processes by the Insolvency Professionals. The IBBI has clarified an Insolvency Professional may render professional service in relation to implementation of resolution plan approved by Adjudicating Authority, provided details...
The Insolvency and Bankruptcy Board of India (“IBBI”) has issued a circular dated 01.02.2024, intimating measures for facilitating efficient conduct of the processes by the Insolvency Professionals. The IBBI has clarified an Insolvency Professional may render professional service in relation to implementation of resolution plan approved by Adjudicating Authority, provided details of such service are mentioned in the resolution plan approved by Adjudicating Authority.
The IBBI has further clarified that for the purposes of clause 25C of Code of Conduct specified in First Schedule to Insolvency Professional Regulations, the bill or invoice may be raised in the name of the Insolvency Professional Entity or the professional or the firm in which such professional is a partner.
Brief Background
An Insolvency Professional (“IP”) assumes different roles and performs various functions under the Insolvency and Bankruptcy Code, 2016 (Code). The Code empowers an IP to appoint accountants, legal or other professionals to effectively discharge its functions. The IP can also avail support services from an insolvency professional entity (IPE). The fee to such professionals, fee to IPE and other expenses incurred by the IP form part of the respective process costs.
Section 208 of the Code read with IBBI (Insolvency Professionals) Regulations, 2016 (“IP Regulations”) mandates an IP to abide by the Code of Conduct. A detailed Code of Conduct is specified in the First Schedule to IP Regulations. To build confidence of the stakeholders in the insolvency profession and ensure its development, the Code of Conduct governs principles like integrity, independence, impartiality, remuneration and costs, etc.
Based on the feedback received from stakeholders and experiences encountered during implementation, the IBBI has provided the following clarifications to facilitate efficient conduct of the processes:
The following clarifications have been given:
- Clarification in relation to rendering professional service by an IP in implementation of the resolution plan approved by the Adjudicating Authority
Regulation 2(1)(a) of IP Regulations defines 'assignment' as any assignment of an IP as interim resolution professional, resolution professional, liquidator, bankruptcy trustee, authorised representative or in any other role under the Code.
Clause 23A of Code of Conduct specified in First Schedule to IP Regulations provides a cooling off period of one year for the IP for seeking employment or rendering professional services to related stakeholders like corporate debtor (CD), certain creditors, successful resolution applicant and their relatives, after closure of the assignment.
Regulation 38 of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 provides for mandatory contents of the resolution plan inter alia including its implementation schedule, management, and control of the business of the CD during its term and adequate means for supervising its implementation.
In several instances, it is observed that the Adjudicating Authority (AA) approves the resolution plan with provisions for constitution of implementation or monitoring committees, subject to meeting other requirements. Such implementation mechanism is proposed to ensure effective implementation of the approved resolution plan and effective management of the CD during the transitional phase. Since, IP is already familiar with the nuances of the business of CD, IP is normally given a role in the implementation or monitoring committee.
Clarification: In order to facilitate smooth implementation of the resolution plan, it is hereby clarified that an IP may render professional service in relation to implementation of resolution plan approved by the AA, provided details of such service are mentioned in the resolution plan approved by the AA
- Clarification on compliance regarding billing / invoicing for services availed by IP from professionals
Clause 25C of Code of Conduct specified in First Schedule to IP Regulations stipulates that an IP shall ensure that the IPE or the professional engaged by it raises bills or invoices in their own name towards their fees, and such fees shall be paid to them through banking channel.
It is pertinent to note that as per the terms of engagement or the market practice, the bill or invoice may also be raised in the name of the firm in which the individual professional appointed by IP is a partner. Thus, it is considered prudent to clarify that the bill or invoice raised in the name of the firm would be an adequate compliance of the regulation by the IP.
Clarification: It is hereby clarified that for the purposes of clause 25C of Code of Conduct specified in First Schedule to IP Regulations, the bill or invoice may be raised in the name of the IPE or the professional or the firm in which such professional is a partner.
Ref No.: No. IBBI/IP/65/2024