Insolvency proceedings: Who can register as resolution professional?

Issue stirred a debate after insolvency professional registered complaint with the sector regulator

A curious issue of whether a company can register itself as a resolution professional and raise the main bills for the services, so granted, has cropped up in the nascent discipline of insolvency.

The issue stirred a debate after an insolvency professional registered a complaint with the sector regulator against a multinational company raising bills for insolvency services. The issue arose since Section 207 of the insolvency and bankruptcy code (IBC) says that every insolvency professional shall, after obtaining the membership of any insolvency professional agency, register himself with the board (Insolvency and Bankruptcy Board of India).

The section further reads, the board may specify the categories of professionals or persons possessing such qualifications and experience in the field of finance, law, management, insolvency or such other field, as it deems fit. This has given an interpretation that a company cannot engage itself as a provider of insolvency services. At various fora, insolvency professionals have raised an objection to the big four auditing companies being made resolution professionals.

Complaints have also been filed with the Insolvency and Bankruptcy Board of India (IBBI) against these firms.One of the latest complaints has been against a multinational firm for raising the bill for the service provided to the client.

An official from the firm stated that the agreement with the client (company against which insolvency proceedings have been initiated) who has been a partner at the firm will be the resolution professional and the firm will provide back-end support as it has sector experts as also chartered accountants, cost accountants who are required to run a company successfully.

In a recent event on insolvency, chairman of the board M S Sahoo mentioned that only individuals can render insolvency services. He added that insolvency professional can employ an insolvency professional entity to help in the insolvency process. However, no insolvency professional entity can act as a resolution professional, according to a reading of the IBC by some experts. Mamta Binani, an insolvency professional states that though the code does not specify who exactly should raise a bill, it is understood that since the individual is working on the case, he has to raise the bill. She adds, "If the IP engages others who will provide support in the insolvency process, an ancillary bill should be raised in the name of the entity that is providing support. There cannot ideally be only one bill. The bifurcation has to be shown very clearly.Some experts say that the person offering resolution services cannot even be employed with any firm. In fact, the IBBI has rejected one application because the applicant was working full-time with a firm and drawing a pay cheque every month. A lawyer or a chartered accountant or a company secretary with ten years of experience can be an insolvency professional, provided he clears a test conducted by the regulator.