Entities as Insolvency Professional!!

Can a hospital be registered as a doctor? Can a court be called a judge?

We respect collective and coordinated efforts. However, no Human Collective can replace the prime and primary element – Human.

The Insolvency Resolution Process is a collective effort under the leadership of the Insolvency Professional. He led his team from a tight rope wearing a crown of thorns.

There is no doubt. Insolvency Professionals need services and help. After getting a declaration of independence, he hires independent professionals like advocates, chartered accountants, company secretaries, and valuers. These professionals, as per Regulations, should not be related to significant stakeholders, including the Resolution Professional. While managing a stressed company as going concern, he hires CFO, CEO and other professionals and try not to continue with the old team which led that company into stress.

The Insolvency Professional also hire his own team like any other professional like doctors, Advocate or company Secretaries hire their qualified, semi-qualified, skilled and unskilled staff. Similar to any other professional, all payments to his team and staff members are made from the professional fee of Insolvency Professional.

My emphasis is the Insolvency Professional need a good team in which he has long-term faith and confidence. No doubt, the Insolvency Professional is as independent as his team is. But every Insolvency Professional, at least in his initial years, do not have the resources to build his team.

Presently, an Insolvency Professional (IP) may have services of the Insolvency Professional Entities (IPE) in which he holds a leading position. Still, these services should be on an arm’s length basis. This is on an Insolvency Professional whether he wants to join an Insolvency Professional Entities or not. Despite the growth, the concept of Insolvency Professional Entities is not much popular among Insolvency Professionals. Out of 140 Insolvency Professional Entities total of 44 have shut their shop. Their closure does not impact the insolvency resolution but the finance of the Regulators – 3 IPAs, the front-line regulator, and the IBBI, the principal regulator.

Unfortunately, most of the failed Insolvency Professional Entities failed as the team usually reports to the protagonist promotor of the Insolvency Professional Entities and fails to get the confidence of the other Insolvency Professionals in the entity.

With this background discussion, now I come to the Discussion Paper on enabling entities to become insolvency professionals dated 14 June 2022, issued by the Insolvency and Bankruptcy Board of India.

The Statement of Problem in this discussion paper has two noteworthy observations:

  1. Ensuring continued business operations of a stressed company is an onerous job, and it may not be possible for a single professional to take on the multi-task activities of the board of directors, along with other important insolvency resolution process functions, that too in a time-bound manner;
  2. To fulfil their duties under section 25 of the Code, the resolution professional tends to outsource his functions to other persons such as Insolvency Professional Entities, Process advisors etc. The supporting entities are often not under any strong regulatory framework. Accordingly, it is not possible to fix accountability on unregulated entities.

There is no possibility of disputing the first observation. Ensuring continued business operations of a stressed company and conducting insolvency resolution of a stressed company without any business operation is not possible for a single professional. They need a team.

Regarding second observation hereinabove mentioned, I have the following questions:

  1. Will the whole board of directors of the Insolvency Professional Entity replace the board of the stressed company?
  2. Will every person employed by the Insolvency Professional Entity comes under a strong regulatory framework?

My general reply is negative. However, if it is affirmative, it is affirmative also for the team of all persons hired or employed by any individual Insolvency Professional.

Permitting a company, limited liability partnership or registered partnership firm (hereinafter called Entities) as an Insolvency Professional does not facilitate the Insolvency Process beyond the existing possibilities. We assume economy of scale and joint efforts in the case of Entities as Insolvency professionals. Any legal entity is as good as the individuals behind it. These entities will manage by their promoter or Principal officers.

So, why not an Individual Insolvency Professional can have a proper setup? There should be no reason except for a lack of initial capital and regulatory support. Therefore, whatever facility regulators are willing to provide to these Entities should also be provided to Individual Insolvency Professionals. Further, Regulators should also facilitate the One Person Companies (OPC) of Insolvency Professionals.

I am publishing this on the blog for discussion purposes. I will submit my final thought with IBBI one or two days before the last date.  

Disclaimer: The writer is an Insolvency Professional, and his interest may impact the outcome of this discussion.

Aishwarya Mohan Gahrana, Company Secretary and Insolvency Professional

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