Insolvency and Bankruptcy Board of India
14 th August, 2018
Subject: Governance of Insolvency Professional Agencies and Information Utilities
The institutional infrastructure under the Insolvency and Bankruptcy Code, 2016 (Code) envisages four key pillars, namely, the Adjudicating Authority (National Company Law Tribunal and Debt Recovery Tribunal), the Insolvency and Bankruptcy Board of India (IBBI), the Information Utilities (IUs), and the Insolvency Professionals (IPs). An IP plays a central role in resolution, liquidation and bankruptcy processes of companies, LLPs, partnership firms and individuals. The Bankruptcy Law Reforms Committee (BLRC), which conceptualised the Code, felt that regulations must ensure that IPs are competent to perform the variety of tasks they may be hired for and that IPs are fair and impartial, as also conflict of interests are minimised.
2. To this end, the BLRC recommended that the Insolvency Professional Agencies (IPAs) establish rules and standards for their members through bye-laws, create and update relevant entry barriers, and have mechanisms in place to enforce their rules and standards effectively. It observed: “Thus, the Committee believes that a new model of “regulated self-regulation” is optimal for the IP profession. This means creating a two-tier structure of regulation. The Regulator will enable the creation of a competitive market for IP agencies under it. This is unlike the current structure of professional agencies which have a legal monopoly over their respective domains. The IP agencies under the Board will, within the regulatory framework defined, act as self-regulating professional bodies that will focus on developing the IP profession for their role under the Code. They will induct IPs as their members, develop professional standards and code of ethics under the Code, audit the functioning of their members, discipline them and take actions against them if necessary. These actions will be within the standards that the Board will define. The Board will have oversight on the functioning of these agencies and will monitor their performance as regulatory authorities for their members under the Code. If these agencies are found lacking in this role, the Board will take away their registration to act as IP agencies.”
3. The BLRC was of the opinion that the regulatory structure be so designed that competition is promoted amongst the multiple IPAs to help achieve efficiency gains. Greater competition among the IPAs will in turn lead to better standards and rules and better enforcement. It visualised IPAs as mini State having the following functions: “1. Regulatory functions – drafting detailed standards and codes of conduct through bye-laws, that are made public and are binding on all members; 2. Executive functions – monitoring, inspecting and investigating members on a regular basis, and gathering information on their performance, with the overarching objective of preventing frivolous behaviour and malfeasance in the conduct of IP duties;
3. Quasi-judicial functions – addressing grievances of aggrieved parties, hearing complaints against members and taking suitable actions.”
4. Section 205 of the Code empowers an IPA to make bye-laws consistent with the model byelaws specified by the IBBI. Section 204 of the Code provides that an IPA shall perform the following functions: (a) Grant membership to persons who fulfil all requirements set out in its bye-laws on payment of membership fee;
b) Lay down standards of professional conduct for its members;
(c) Monitor the performance of its members;
(d) Safeguard the rights, privileges and interests of insolvency professionals who are its members;
(e) Suspend or cancel the membership of insolvency professionals who are its members on the grounds set out in its bye-laws;
(f) Redress the grievances of consumers against insolvency professionals who are its members; and
(g) Publish information about its functions, list of its members, performance of its members and such other information as may be specified by regulations.
10. The existing IPAs and the IU may get one year to comply with the provisions proposed in Para 7, 8 and 9 above.
11. A note covering the above aspects was shared with the IPAs and discussed in the meeting with CEOs of the IPAs and the Managing Director of the IU on 7th August, 2018. This paper has considered their suggestions.
12. Comments and suggestions are invited from public, including stakeholders on the proposals at Para 7A, 7B, 7C, 7D, 8, 9A, 9B and 10 at id: email@example.com latest by 5th September, 2018. In subject line of the email, please state: “Comments on Para 7A / Comments on Para 7B / Comments on Para 7C / Comments on Para 7D / Comments on Para 8 / Comments on Para 9 / Comments on Para 10A / Comments on Para 10B”