Newsletters

IBC | Legislative Alert | 3 days for relationship disclosures by insolvency professionals and external professionals : IBBI

Jan2018

Corporate & Commercial

In a strictly worded circular (available here) issued by the Insolvency and Bankruptcy Board of India (“IBBI”), issued on 16 January 2018, IBBI has put mechanism in place to ensure transparency around appointment of the insolvency professionals (“IPs”) and professionals like registered valuers, accountants, legal and other professionals (“Professionals”) appointed by such IPs involved in conducting the resolution process. Every IP is also required to confirm that appointment of every Professional has been made at arms’ length relationship.

  1. Timeline of 3 days. An IP is given a timeline of three (3) days (from the occurrence of the events mentioned in the circular) for making disclosures of relationships of the IP and Professionals, to the Insolvency Professional Agency (“IPA”) of which such IP is a member.
  2. Retrospective Effect. Importantly, the circular has also been given a retrospective effect, and all the ongoing resolution processes are required to comply with the requirements of the circular by or before 31 January 2018.
  3. What is required to be disclosed. Following are the nature of relationships that are within the purview of the circular:
Kind of relationship Nature of relationship
A Where the IP or the Professional, as the case may be, has derived 5% or more of his / its gross revenue in a year from professional services to the related party.
B Where the IP or the Professional, as the case may be, is a shareholder, director, key managerial personnel or partner of the related party.
C Where a relative (spouse, parents, parents of spouse, sibling of self and spouse, and children) of the IP or the Professional, as the case may be, has a relationship of kind A or B with the related party.
D Where the IP or the Professional, as the case may be, is a partner or director of a company, firm or LLP, such as, an IPA or registered valuer, the relationship of kind A, B or C of every partner or director of such company, firm or LLP with the related party.
  1. Which relationships are required to be disclosed by IP and Professionals.
Disclosures by IP of relationship with following: Disclosures by each Professional of relationship with following:
  1. Corporate debtor;
  2. Professionals;
  3. Financial creditor(s);
  4. Interim finance provider; and
  5. Prospective resolution applicant(s)
  1. IP;
  2. Corporate debtor;
  3. Financial creditor(s);
  4. Interim finance provider; and
  5. Prospective resolution applicant(s)
  1. Non-compliance to incur penalty. The IP is required to ensure timely and correct disclosures by him and the Professionals appointed by him. Any wrong disclosure and delayed disclosure shall attract action against the IP and the Professionals as per the provisions of the law.
  2. Disclosures to be made to IPA. The disclosures as required by the circular are required to be done to IPA which shall disseminate the same on its website within three (3) days of receipt of disclosures.

Please feel free to reach us for views / questions / queries at ibcupdate@elp-in.com.

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