Govt crackdown on erring insolvency professionals; IBBI institutes hefty penalties

PTIUpdated: Sunday, August 01, 2021, 11:03 PM IST
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The Centre has proposed a crackdown on insolvency professionals that develop nexus with companies facing bankruptcy proceedings thereby delaying the resolution process.

Bankruptcy regulator, the Insolvency and Bankruptcy Board of India (IBBI) has tightened disciplinary proceedings for insolvency professionals (IPs), instituting heavy penalties for violations of laid down code of conduct with possibility of erring professionals also losing their licence to practice.

The IBBI had decided that misconduct or violations by IPs would attract a penalty that will up to 25 per cent of the fee charged by professionals for their services in a resolution process. The regulator has instituted a system of maximum and minimum penalty with minimum not being less than Rs 50,000 and maximum being Rs 2,00,000 or 25 per cent of fee, whichever is higher.

Under the new system, penalties would be imposed by insolvency professionals agencies (IPAs) for violations found in the conduct of their members.

The IBBI circular said that IPAs will have the flexibility "to impose a graduated system of penalties, where minor non-compliances will result in monetary fines, and major violations will result in expulsion from the agency."

So the fine will be up to Rs 1,00,000 or 25 per cent of fee, whichever is higher, if IPs fails to submit disclosures, returns, etc. to IPAs or submits inadequate or incorrect disclosures, returns, etc., relating to any assignment, as required under the Code.

Penalty will also be imposed if IPs accept an assignment having conflict of interests with the stakeholders or fail to maintain records.

Under the new regulations, fine has also been proposed if IPs rejects a claim without giving any proper reason while undertaking an assignment, fails to give notice about meeting of creditors, fails to reject resolution plans from ineligible applicants, etc.

IBBI has set a benchmark for penalties so that IPAs or self-regulators impose penalties in a uniform manner.

The IPAs enrol, educate, monitor and regulate insolvency professionals who come from different backgrounds. Chartered accountants, cost accountants, company secretaries and lawyers are usually enrolled as IPs.

The new system of penalties has been introduced in the interest of objectivity and uniformity so that there are no cases of conflict of interests and the resolution process is undertaken in a free and fair manner.

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