The Insolvency and Bankruptcy Board of India (IBBI) has issued a circular on 12 June 2018 (available here), for clarifying various obligations of the insolvency professional (IP) under the provisions of the Insolvency and Bankruptcy Code, 2016 (Code) in relation to fees, expenses and insolvency resolution process cost (IRPC). The circular has been issued in furtherance of the discussion paper earlier issued by the IBBI titled “Regulation of fee payable to IPs and other process costs under Corporate Insolvency Resolution Process” on its website on 1 April 2018. Following are the key obligations of IPs covered under the circular:
1. Illustrative list for reasonable fees provided. An IP can charge reasonable fees and what is reasonable is context specific and is not amenable to a precise definition. The circular has provided an illustrative list of factors considered in determination of what is reasonable is given in Annexure B therein.
2. Directions in relation to charging fees. The IP is required to ensure the following:
2.1 the fee payable to him, fee payable to an Insolvency Professional Entity, and fee payable to Registered Valuers and other Professionals, and other expenses incurred by him during the corporate insolvency resolution process (CIRP) are reasonable;
2.2 the fee or other expenses incurred by him are directly related to and necessary for the CIRP;
2.3 the fee or other expenses are determined by him on an arms’ length basis, in consonance with the requirements of integrity and independence;
2.4 written contemporaneous records for incurring or agreeing to incur any fee or other expense are maintained;
2.5 supporting records of fee and other expenses incurred are maintained at least for three years from the completion of the CIRP;
2.6 approval of the Committee of Creditors (COC) for the fee or other expense is obtained, wherever approval is required; and
2.7 all CIRP related fee and other expenses are paid through banking channel.
3. Directions in relation to IRPC – Exclusions and Inclusions. The IP is required to ensure the following:
3.1 no fee or expense other than what is permitted under the Code read with regulations made thereunder is included in the IRPC;
3.2 no fee or expense other than the IRPC incurred by the IP is borne by the corporate debtor;
3.3 only the IRPC, to the extent not paid during the CIRP from the internal sources of the Corporate Debtor, shall be met in the manner provided in section 30 or section 53, as the case may be;
3.4 IRPC shall not include:
(a) any fee or other expense not directly related to CIRP;
(b) any fee or other expense beyond the amount approved by COC, where such approval is required;
(c) any fee or other expense incurred before the commencement of CIRP or to be incurred after the completion of the CIRP;
(d) any expense incurred by a creditor, claimant, resolution applicant, promoter or member of the Board of Directors of the corporate debtor in relation to the CIRP;
(e) any penalty imposed on the corporate debtor for non-compliance with applicable laws during the CIRP;
(f) any expense incurred by a member of COC or a professional engaged by the COC;
(g) any expense incurred on travel and stay of a member of COC; and
(h) any expense incurred by the COC directly; [Explanation: Legal opinion is required on a matter. If that matter is relevant for the CIRP, the IP shall obtain it. If the COC requires a legal opinion in addition to or in lieu of the opinion obtained or being obtained by the IP, the expense of such opinion shall not be included in IRPC.]
4. Disclosures by 15 July 2018. The IP is directed to disclose fee and other expenses in the relevant Form in Annexure C to the Insolvency Professional Agency of which he is a member:
(a) for all concluded CIRPs by 15 July 2018; and
(b) for ongoing and subsequent CIRPs within the time as specified in the relevant Form.
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