Insolvency professionals face a test

The new insolvency regime has completed six months. Everything seems to have happened in a jiffy. Close to a hundred cases have been filed. And, the big ones are likely to hit the National Company Law Tribunal this week.
 

The completion of six months of the regime is also underlined by another event. Over 950 insolvency professionals would see their registrations lapse this week. These were special limited-period early-bird registrations allowed by the Insolvency and Bankruptcy Board of India (IBBI) to kickstart the regime in India.

As a one-time move, the board had allowed senior professionals such as chartered accountants, lawyers, and company secretaries with 15 or more years of experience to register as IPs directly. However, these registrations were valid for six months only. As many as 977 IPs were registered in this category between November and January.

Of these, about 24 registrations lapsed at the end of May. About 600 registrations lapsed on Friday, and the rest will expire on July 6.

The expiry of registration comes at a time when insolvency activity is picking up briskly after the Reserve Bank of India earmarked 12 large assets for the process supervised by the National Company Law Tribunal.

IPs play a key role as each insolvency-bound company has to appoint an interim resolution professional and a resolution professional once the plan is cleared by the NCLT. IPs are also required to advise lenders and act on their behalf. Many companies that are voluntarily opting for the process also seek the services of IPs.

Though a limited insolvency exam route has been launched, just about 400 professionals have managed to pass that so far, according to the IBBI data. The limited insolvency exam is a computerised, objective-type exam devised by the IBBI. The syllabus includes insolvency law, company law, and banking- and recovery-related provisions.

Some of the IPs whose registrations are lapsing have taken the exam or enrolled themselves to take the exam in the coming days, but a lot of them are also realising that this is not their cup of tea, given the complexities involved in the process.

Some are senior professionals, who are scared of failing the exam. They are also opting out. Some have taken and failed. There is also a new syllabus and question bank in place beginning July. All these factors are coming into play, according to people familiar with the matter.

Officials hope by the end of July, a good number of professionals will join the pool by clearing the exam as they see a lot of interest in enrolments among chartered accountants, lawyers, and even bankers.

Though passing the limited insolvency exam gives life membership for IPs, it is only an interim arrangement. The regulator is currently working on the syllabus and modalities for a full-fledged National Insolvency Exam. But, this could take shape over a period of time as the thinking of the regulators is that enough knowledge needs to be developed through a study of practical situations that arise as the big stressed assets go in for resolution.

At the pace the regime is going, even this might be done faster than expected. Will all this progress result in additional points in the World Bank’s ease of business rankings? The cut-off date for new rankings is usually May-June. Will the insolvency regime get its due credit? Or would it need to show more results before being considered? Perhaps it is too early to tell.