IBC | Legislative Alert | IP Regulations | Registration norms amended for IPEs | Code of conduct for IPs to require disclosure of fees / relationship with financial creditors

The Insolvency and Bankruptcy Board of India (“IBBI”) has amended the IBBI (Insolvency Professionals) Regulations, 2016 (“IP Regulations”) vide the IBBI (Insolvency Professionals) (Amendment) Regulations, 2018 (“Amendment Regulations”) (available here) effective from 1 April 2018, to amend the IP Regulations to inter alia provide for:

1. Parameters changed for registration as insolvency professional entity (IPE) | Existing IPEs given 2-5 months for compliance with new norms

As per the Amendment Regulations, many new parameters have been added, for a company, a registered partnership firm (“Firm”) or a limited liability partnership (“LLP”) to be recognised as an IPE. These parameters are:

(a) its sole objective is to provide support services to insolvency professionals (“IPs”), who are its partners or directors, as the case may be;
(b) it has a net worth of not less than Rs. 1 Crore;
(c) majority of its shares is held by IPs, who are its directors, in case it is a company;
(d) majority of capital contribution is made by IPs, who are its partners, in case it is a LLP or a Firm;
(e) majority of its partners or directors, as the case may be, are IPs;
(f) majority of its whole-time directors are IPs, in case it is a company; and
(g) none of its partners or directors is a partner or a director of another IPE.

Earlier parameters were that the majority of the partners of the LLP or Firm are registered as IPs; or majority of the whole-time directors of the company are registered as IPs, as the case may be.

For existing registered IPEs as on 1 April 2018, they have been given time as follows to comply with the new norms:

(i) Till 30 September 2018, for compliance with (a) – (d) mentioned above; and
(ii) Till 30 June 2018, for compliance with (e) – (g) mentioned above; and

2. Code of conduct for IPs | Disclosure to COC & IPA about his relationship with financial creditors | Disclosure of fees to IPA | Disclosure by IPA on its website

As part of the code of conducts for IPs, they are now bound by the following additional norms:

(i) Disclose as to whether he was an employee of or has been in the panel of any financial creditor of the corporate debtor, to the committee of creditors (“COC”) and to the insolvency professional agency (“IPA”) of which he is a professional member and the IPA will in turn publish such disclosure on its website;

(ii) Disclose the fee payable to him, the fee payable to the IPE, and the fee payable to professionals engaged by him to the IPA of which he is a professional member and the IPA will in turn publish such disclosure on its website.