CS Bilu Balakrishnan,F.C.S.
As most you may aware that The Insolvency and Bankruptcy Code, 2016 is the bankruptcy law of India which seeks to consolidate the existing framework by creating a single law for insolvency and bankruptcy. The Code received the assent of the President of India on 28 May 2016. The Code seeks to repeal the Presidency Towns Insolvency Act, 19 Act, 1993 and Sick Industrial Companies (Special Provisions) Repeal Act, 2003, among others. One of the key features of the Code is the concept of “Insolvency Professionals”. The insolvency process will be managed by licensed professionals. These professionals will also control the assets of the debtor during the insolvency process.
With no doubt we can say that the new code and regulations with respect to “Insolvency Professionals” will open up a new window of opportunities for professionals such as Chartered Accountants, Company Secretaries, Cost Accountants and Advocates.
This write-up elaborates the legal provisions of “Insolvency Professionals” as enunciated in the Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016 released by the Govt. of India on 23rd November, 2016.
The Insolvency and Bankruptcy Board of India (hereinafter “Board” in short) , Govt. of India vide its notification dated 23rd November, 2016 has notified Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016 in exercise of the powers conferred under the Insolvency and Bankruptcy Code, 2016.
INSOLVENCY EXAMINATIONS (Reg.3):
(1) The Board shall, either on its own or through a designated agency, conduct a ‘National Insolvency Examination’ in such a manner and at such frequency, as may be specified, to test the knowledge and practical skills of individuals in the areas of insolvency, bankruptcy and allied subjects.
(2) The Board shall, either on its own or through a designated agency, conduct a ‘Limited Insolvency Examination’ to test the knowledge and application of knowledge of individuals in the areas of insolvency, bankruptcy and allied subjects. The syllabus, format and frequency of the ‘Limited Insolvency Examination’, including qualifying marks, shall be published on the website of the Board at least one month before the examination.
HOW TO REGISTER AS A REGISTRATION OF INSOLVENCY PROFESSIONALS ?
No individual shall be eligible to be registered as an insolvency professional if he-
(a) is a minor;
(b) is not a person resident in India;
(c) does not have the qualification and experience specified in Regulation 5 or Regulation 9, as the case may be;
(d) has been convicted by any competent court for an offence punishable with imprisonment for a term exceeding six months or for an offence involving moral turpitude, and a period of five years has not elapsed from the date of expiry of the sentence:
Provided that if a person has been convicted of any offence and sentenced in respect thereof to imprisonment for a period of seven years or more, he shall not be eligible to be registered;
(e) he is an undischarged insolvent, or has applied to be adjudicated as an insolvent;
(f) he has been declared to be of unsound mind; or
(g) he is not a fit and proper person;
Explanation: For determining whether an individual is fit and proper under these Regulations, the Board may take account of any consideration as it deems fit, including but not limited to the following criteria-
(i) integrity, reputation and character,
(ii) absence of convictions and restraint orders, and
(iii) competence, including financial solvency and net worth.
Qualifications and experience (Reg.5):
Subject to the other provisions of these Regulations, an individual shall be eligible for registration, if he-
(a) has passed the National Insolvency Examination;
(b) has passed the Limited Insolvency Examination, and has fifteen years of experience in management, after he received a Bachelor’s degree from a university established or recognized by law; or
(c) has passed the Limited Insolvency Examination and has ten years of experience as –
(i) a chartered accountant enrolled as a member of the Institute of Chartered Accountants of India,
(ii) a company secretary enrolled as a member of the Institute of Company Secretaries of India,
(iii) a cost accountant enrolled as a member of the Institute of Cost Accountants of India, or
(iv) an advocate enrolled with a Bar Council.
How to apply (Reg.6):
- An individual enrolled with an insolvency professional agency (presently ICAI and ICSI) as a professional member may make an application to the Board in Form A, along with a non-refundable application fee of ten thousand rupees to the Board.
- The Board shall acknowledge an application made under this Regulation within seven days of its receipt.
- The Board may require the applicant to submit, within reasonable time, additional documents, information or clarification that it deems fit.
- The Board may require the applicant to appear, within reasonable time, before the Board in person, or through his authorised representative for clarifications required for processing the application.
Certificate of registration (Reg.7)
If the Board is satisfied, after such inspection or inquiry as it deems necessary that the applicant is eligible under these Regulations, it may grant a certificate of registration to the applicant to carry on the activities of an insolvency professional in Form B within sixty days of receipt of the application.
(a) at all times abide by the Code, rules, regulations, and guidelines thereunder and the bye-laws of the insolvency professional agency with which he is enrolled;
(b) at all times continue to satisfy the requirements under Regulation 4;
(c) pay a fee of ten thousand rupees to the Board, every five years after the year in which the certificate is granted;
(d) not render services as an insolvency professional unless he becomes a partner or director of an insolvency professional entity recognised by the Board under Regulation 13, if he is not a citizen of India;
(e) take prior permission of the Board for shifting his professional membership from one insolvency professional agency to another, after receiving no objection from both the concerned insolvency professional agencies;
(f) take adequate steps for redressal of grievances;
(g) maintain records of all assignments undertaken by him under the Code for at least three years from the completion of such assignment;
(h) abide by the Code of Conduct specified in the First Schedule to these Regulations; and
(i) abide by such other conditions as may be imposed by the Board.
Registration for a limited period (Reg.9)
An individual shall be eligible to be registered for a limited period as an insolvency professional if he-
(a) has been ‘in practice’ for fifteen years as-
(i) a chartered accountant enrolled as a member of the Institute of Chartered Accountants of India,
(ii) a company secretary enrolled as a member of the Institute of Company Secretaries of India, (iii) a cost accountant enrolled as a member of the Institute of Cost Accountants of India, or
(iv) an advocate enrolled with a Bar Council;
and (b) submits an application for registration in Form A of the Second Schedule to these Regulations to the insolvency professional agency with which he is enrolled on or before 31st December, 2016 along with a non-refundable application fee of five thousand rupees which shall be collected by such insolvency professional agency on behalf of the Board.
(2) The insolvency professional agency shall submit to the Board the fee collected and the details of the applications received under sub-regulation (1)(b).
(3) An individual referred to sub-regulation (1) shall be registered for a limited period upon submission of the details and fee to the Board under sub-regulation (2), which shall be valid for a period of six months from the date of such submission.
(4) An insolvency professional registered under sub-regulation (3) shall not undertake any assignment as an insolvency professional after the expiry of his registration:
Provided that he may complete the pending assignments undertaken before the expiry of his registration, and his registration shall be deemed to be valid for this limited purpose.
Recognition of Insolvency Professional Entities (Re.12):
(1) A limited liability partnership, a registered partnership firm or a company may be recognised as an insolvency professional entity if-
(a) a majority of the partners of the limited liability partnership or registered partnership firm are registered as insolvency professionals; or
(b) a majority of the whole-time directors of the company are registered as insolvency professionals, as the case may be.
(2) A person eligible under sub-regulation (1) may make an application for recognition as an insolvency professional entity to the Board in Form C of the Second Schedule to these Regulations.
If the Board is satisfied, after such inspection or inquiry as it deems necessary that the applicant is eligible under these Regulations, it may grant a certificate of recognition as an insolvency professional entity in Form D.
The recognition shall be subject to the conditions that the insolvency professional entity shall-
(a) at all times continue to satisfy the requirements under Regulation 12;
(b) inform the Board, within seven days, when an insolvency professional ceases to be its director or partner, as the case may be,
(c) inform the Board, within seven days, when an insolvency professional joins as its director or partner, as the case may be, and
(d) abide by such other conditions as may be specified.
An insolvency professional entity shall be jointly and severally liable for all acts or omissions of its partners or directors as insolvency professionals committed during such partnership or directorship.
CODE OF CONDUCT FOR INSOLVENCY PROFESSIONALS (1st Schedule)
Integrity and objectivity
1. An insolvency professional must maintain integrity by being honest, straightforward, and forthright in all professional relationships.
2. An insolvency professional must not misrepresent any facts or situations and should refrain from being involved in any action that would bring disrepute to the profession.
3. An insolvency professional must act with objectivity in his professional dealings by ensuring that his decisions are made without the presence of any bias, conflict of interest, coercion, or undue influence of any party, whether directly connected to the insolvency proceedings or not.
4. An insolvency professional appointed as an interim resolution professional, resolution professional, liquidator, or bankruptcy trustee should not himself acquire, directly or indirectly, any of the assets of the debtor, nor knowingly permit any relative to do so.
Independence and impartiality
5. An insolvency professional must maintain complete independence in his professional relationships and should conduct the insolvency resolution, liquidation or bankruptcy process, as the case may be, independent of external influences.
6. In cases where the insolvency professional is dealing with assets of a debtor during liquidation or bankruptcy process, he must ensure that he or his relatives do not knowingly acquire any such assets, whether directly or indirectly unless it is shown that there was no impairment of objectivity, independence or impartiality in the liquidation or bankruptcy process and the approval of the Board has been obtained in the matter.
7. An insolvency professional shall not take up an assignment under the Code if he, any of his relatives, any of the partners or directors of the insolvency professional entity of which he is a partner or director, or the insolvency professional entity of which he is a partner or director is not independent, in terms of the Regulations related to the processes under the Code, in relation to the corporate person/ debtor and its related parties.
8. An insolvency professional shall disclose the existence of any pecuniary or personal relationship with any of the stakeholders entitled to distribution under sections 53 or 178 of the Code, and the concerned corporate person/ debtor as soon as he becomes aware of it, by making a declaration of the same to the applicant, committee of creditors, and the person proposing appointment, as applicable.
9. An insolvency professional shall not influence the decision or the work of the committee of creditors or debtor, or other stakeholders under the Code, so as to make any undue or unlawful gains for himself or his related parties, or cause any undue preference for any other persons for undue or unlawful gains and shall not adopt any illegal or improper means to achieve any mala fide objectives.
10. An insolvency professional must maintain and upgrade his professional knowledge and skills to render competent professional service.
Representation of correct facts and correcting misapprehensions
11. An insolvency professional must inform such persons under the Code as may be required, of a misapprehension or wrongful consideration of a fact of which he becomes aware, as soon as may be practicable.
12. An insolvency professional must not conceal any material information or knowingly make a misleading statement to the Board, the Adjudicating Authority or any stakeholder, as applicable.
13. An insolvency professional must adhere to the time limits prescribed in the Code and the rules, regulations and guidelines there under for insolvency resolution, liquidation or bankruptcy process, as the case may be, and must carefully plan his actions, and promptly communicate with all stakeholders involved for the timely discharge of his duties.
14. An insolvency professional must not act with mala fide or be negligent while performing his functions and duties under the Code.
15. An insolvency professional must make efforts to ensure that all communication to the stakeholders, whether in the form of notices, reports, updates, directions, or clarifications, is made well in advance and in a manner which is simple, clear, and easily understood by the recipients.
16. An insolvency professional must ensure that he maintains written contemporaneous records for any decision taken, the reasons for taking the decision, and the information and evidence in support of such decision. This shall be maintained so as to sufficiently enable a reasonable person to take a view on the appropriateness of his decisions and actions.
17. An insolvency professional must not make any private communication with any of the stakeholders unless required by the Code, rules, regulations and guidelines thereunder, or orders of the Adjudicating Authority.
18. An insolvency professional must appear, co-operate and be available for inspections and investigations carried out by the Board, any person authorised by the Board or the insolvency professional agency with which he is enrolled.
19. An insolvency professional must provide all information and records as may be required by the Board or the insolvency professional agency with which he is enrolled.
20. An insolvency professional must be available and provide information for any periodic study, research and audit conducted by the Board.
21. An insolvency professional must ensure that confidentiality of the information relating to the insolvency resolution process, liquidation or bankruptcy process, as the case may be, is maintained at all times. However, this shall not prevent him from disclosing any information with the consent of the relevant parties or required by law.
Occupation, employability and restrictions
22. An insolvency professional must refrain from accepting too many assignments, if he is unlikely to be able to devote adequate time to each of his assignments.
23. An insolvency professional must not engage in any employment, except when he has temporarily surrendered his certificate of membership with the insolvency professional agency with which he is registered.
24. An insolvency professional must not conduct business which in the opinion of the Board is inconsistent with the reputation of the profession.
Remuneration and costs
25. An insolvency professional must provide services for remuneration which is charged in a transparent manner, is a reasonable reflection of the work necessarily and properly undertaken, and is not inconsistent with the applicable regulations.
26. An insolvency professional shall not accept any fees or charges other than those which are disclosed to and approved by the persons fixing his remuneration.
27. An insolvency professional shall disclose all costs towards the insolvency resolution process costs, liquidation costs, or costs of the bankruptcy process, as applicable, to all relevant stakeholders, and must endeavour to ensure that such costs are not unreasonable.
Gifts and hospitality
28. An insolvency professional, or his relative must not accept gifts or hospitality which undermines or affects his independence as insolvency professional.
29. An insolvency professional shall not offer gifts or hospitality or a financial or any other advantage to a public servant or any other person, intending to obtain or retain work for himself, or to obtain or retain an advantage in the conduct of profession for himself.