Cracking the whip: Panel puts resolution professionals under the scanner

Govt feels enough checks and balances in place; experts say there's need for audit and regulator

From lack of experience and sectoral expertise to absence of a single independent regulator, the universe of resolution professionals (RPs) has come under the scanner. While some of these issues have been raised by the standing committee in its recent report, government sources insist that there are already enough checks and balances in place for RPs. Experts, however, feel that a peer review or audit and a single regulator might help bring uniformity of approach to the profession. 

Currently, multiple insolvency professional agencies (IPAs) along with the Insolvency and Bankruptcy Board of India (IBBI) oversee the functioning of the insolvency professionals. The standing committee in its report criticised this approach and said that this practise would lead to “a conflict of interest between the regulatory and competitive roles of IPAs”. 

It recommended that an institute of RPs be established as a professional self-regulator so that there are appropriate standards and fair self-regulation. 

A senior government official, however, differed. “Conflict of interest will not disappear with an independent body. As that body too will develop the profession (just like the IPAs). The stock exchanges, for instance, regulate their brokers themselves. Mechanism to address conflict of interest is there in the IBC.”  He also said that Insolvency and Bankruptcy Code (IBC) seeks to create a competitive industry for IPAs. 

While some experts, including RPs, feel that there are enough checks in place, many say there is scope to do more. “Since the inception of the manner in which CIRP proceedings have evolved, one of the areas of concern has been the manner in which a few RPs have conducted themselves. This is evident from the contents of the various orders passed by the disciplinary committee of IBBI,” said Diwakar Maheshwari, dispute resolution partner, Khaitan & co. 

Over 200 inspections have been conducted against insolvency professionals so far and 123 disciplinary actions have been taken by the IBBI and the IPAs. “We need to have a robust legal framework with strict checks and balances to ensure that the RPs function in the manner they ought to. To begin with, this can be achieved by an elaborative negative list for appointing an individual as an RP. This list should have criteria based on practical learnings from the past,” Maheshwari added. 

However, RPs also feel that this specialisation would need to develop and evolve and that they already have a code of conduct. The committee of creditors (CoC), too, reviews their job frequently. “RPs have been trained to do the compliance part which the CoC cannot monitor but a peer review can be done. Reviews by the regulator may also be considered,” said Ashish Chhawchharia, partner and national head - restructuring advisory Grant Thornton Bharat. 

Besides the issue of the regulator, the standing committee had also expressed concern over the competency of fresh graduates as RPs in handling huge and complex corporations. 

IBBI regulations for RPs state that a person registering as an insolvency professional should have experience of ten years in the field of law after bachelor’s or management after a postgraduate degree or fifteen years in management after a bachelor’s degree. “When IBC came there was a demand for RPs. Where do you get the experience unless you do it?,” the senior official said. 

Experts say on ground they have not come across many fresh graduates of the insolvency programme taking on the roles of RPs. They are, however, being hired by many firms as associates. 

“The concern is legitimate as this role requires a fair degree of experience. We have recently hired some from the graduate insolvency programme. They can gain field experience before taking on as RPs,” Chhawchharia said.

Another issue raised by IBC practitioners is the steep cost of RPs as their fees often make up for the largest part of CIRP cost. RPs on the other hand say their job is quite onerous and stressful and depending on the size of the company, it can be very time-consuming. “It is important that the professional fees paid by creditors appropriately remunerates the professionals. We are seeing a decline trend in fees which may dissuade good professionals to remain engaged,” Chhawchharia added.