The insolvency and bankruptcy board of India (IBBI) has proposed a cap on the maximum number of ongoing insolvency or liquidation proceedings that can be handled by the insolvency professionals.
In a discussion paper released on Wednesday, IBBI said that an insolvency professional (IP) can handle a maximum of 5 assignments if he is handling accounts with turnover of less than ₹1000 crore, 4 assignments in the case of accounts with turnover of ₹1000-5000 crore, 3 cases if he is handling ₹5000-10,000 crore turnover accounts and 1 if its a large account of more than ₹50,000 crore.
IBBI observed that a few IPs are handling too many assignments under the Code, which could be detrimental in the long run. The regulator noted that the role of IP is akin to that of a managing director of a company and hence the need to restrict the number of multiple executive functions he will undertake.
“The said restriction on an IP will put a check on undesirable instances of delay and disturbance to the processes led by IPs while simultaneously handling too many assignments under the Code. With limits in place, quality of output is expected to improve; this, in turn, will facilitate inter alia realisation of the objective of value maximization as enshrined in the Code,” the paper noted.
The regulator has sought comments from the public by 25 July.
The discussion paper comes after the Supreme Court in several past instances made observations about the role of IPs and also asked them to refrain from accepting too many assignments. For instance in the bankruptcy case of Lanco Infratech, the Supreme court observed that, “therefore we agreed with the submissions of the respondents considering his previous three assignments to large companies and the current corporate debtor itself is a large company we are of the prima facie view that the proposed IRP would not find sufficient time to act as IRP for the respondent company.”
Similarly, in the case of Essar Steel, the apex court observed that the “responsibility of the resolution professional to (a) manage the affairs of the corporate debtor as a going concern during corporate insolvency resolution process, (b) appoint and convene meetings of the CoC, so that they may decide upon resolution plans, and (c) collect, collate and finally admit claims of all creditors, which must be examined for payment, in full or in part or not at all, by the resolution applicant and be finally negotiated by the Committee of Creditors (CoC).”
Given these varied responsibilities of a resolution professional, IBBI noted that, “Keeping in mind the provisions of the Companies Act, 2013, the skewed work allocation amongst the IPs and the observations of Hon’ble Supreme Court /Hon’ble Adjudicating Authority, as mentioned above, and given the expansive and intense responsibilities of an IP in corporate processes, it is proposed to issue necessary guidelines to IPs advising them to limit the maximum number of assignments handled by them, to five, at a given point of time.”
