Amid allegations that some resolution professionals (RPs), appointed for insolvency resolution for bankrupt firms, are charging “exorbitant fees”, the Insolvency and Bankruptcy Board of India (IBBI) has come out with a regulation to ensure that fees payable to an insolvency professional and expenses incurred by him during the corporate insolvency resolution process (CIRP) are ‘reasonable’.
Issuing a circular on the ‘Fee and other Expenses incurred for Corporate Insolvency Resolution Process’, the bankruptcy board has said an insolvency professional (IP) must ensure that not only fee payable to him is reasonable, but also other expenses incurred by him are reasonable.
According to insolvency and legal experts, this regulation is an attempt by the board to improve compliance in terms of fees charged and expenses incurred by RPs. The board, however, clarified that “what is reasonable is context specific and it is not amenable to a precise definition”.
In the circular, dated June 12, IBBI has directed IPs to ensure that fee or other expenses are determined by him on an arms’ length basis, in consonance with requirements of integrity and independence. They are also asked to ensure that written contemporaneous records for incurring or agreeing to incur any fee or other expense are maintained.
Further, an IP is asked to get approval of the committee of creditors (CoC) for the fee or other expenses, wherever approval is required; and all CIRP-related fees and other expenses should be paid through banking channel.
Notably, fees charged by RPs and all expenses incurred by them during the insolvency resolution process are paid from the cash flow of the corporate debtors, subject to approval of creditors. If the cash flow of the corporate debtor is not sufficient to pay the fees and expenses, the resolution applicants would have to pay those.
The bankruptcy board has also directed insolvency professionals to ensure that no fee or expense other than what is permitted under the Insolvency and Bankruptcy Code (IBC) is included in the insolvency resolution process cost (IRPC). “No fee or expense other than the IRPC incurred by the IP is borne by the corporate debtor; and 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” it said.
“Clearly, one of the main objectives of this guideline issued by the bankruptcy board is to ensure that accountability is maintained for the cost incurred during the entire CIRP process. It means more compliance in terms of fees charged and expenses incurred by the RPs. This is a kind of moral principles on them to have a control over their fees and charges,” a leading resolution professional told FE, requesting anonymity.