Insolvency professionals fear maltreatment as law fails to protect them

 

Even as the Insolvency and Bankruptcy Board of India (IBBI)  taken up a few cases, insolvency professionals (IP) still fear the law (Insolvency and Bankruptcy Code) does not provide fool-proof protection to them. 

Although there is a provision in the section 233 of the Code that no suit, prosecution or other legal proceeding shall lie against the insolvency professional, liquidator and other officials of IBBI for anything which is done in good faith under the Code, professionals feel that it is too hard to prove that a particular act was done in a good faith. 

Nilesh Sharma from the Dhir & Dhir Associates says while the section does not allow any suit or prosecution against IP, 

dilution happens when good faith comes into the picture.  

Sharma argues, “Once allegations in this regard are made against IP, proving that a particular act was done in good faith  will not be an easy task and at the same time the IP will have to bear the heavy litigation cost in this regard.” 

He finds this a reason for professionals to show reluctance in taking the job of an IP.

Further, it is believed that the original promoter of the company may have several allegations against an IP. This may include accusing IP of selling assets to siphon off part of them as well as professional negligence on the part of IP.

Sharma does not rule out the possibility of the original promoter of the company under debt trying to provoke workers against the IP.

Mamta Binani, an IP, says generally people across disciplines such as chartered accountancy, cost accountancy and company secretaryship do not show any inclination to come together to work in any firm, but the job of IP requires these professionals to work jointly. 

She insists that these professionals should come together as the process of insolvency does not lie on one person. 

Currently, only insolvency portion of the Code, which deals with entities, is notified, while bankruptcy part dealing with individuals is yet to be made effective. 

Binani says India needs many more IPs than the current 900, especially once the bankruptcy code is notified by the government.

IP plays a key role in managing rescue and liquidation processes envisaged under the Code.

In the rescue process, IP is the resolution professional and gathers financial information about the debtor, verifies the claims of the creditors, constitutes a committee of creditors on the basis of credit exposure, safeguards the estate, runs the business of the debtor and helps in reaching and administering a consensual rescue plan.

In a liquidation proceeding, the IP is liquidator and sells the assets of the insolvent company and uses the proceeds to pay off all its creditors. 

To be an IP one has to pass the Limited Insolvency Examination, and must have 15 years of experience in management or ten years of experience as a chartered accountant or a company secretary, or a cost accountant or an advocate.

IP could also be registered for a limited period without passing the Limited Insolvency Examination subject to experiences given above.