INSOLVENCY AND BANKRUPTCY BOARD OF INDIA (IBBI) HAS STARTED TAKING A STERNER VIEW OF INSOLVENCY PROFESSIONALS VIOLATING THE CODE
Insolvency professionals are getting longer suspension orders and stiffer fines for violations such as rushing to liquidation and including related entities on committees of creditors
In another case of cancellation, the insolvency professional was found to have constituted the CoC with a related party while excluding the legitimate claims of a public sector bank (PSB) in the first meeting.
Orders about the suspension of professionals are becoming more forthright now. The disciplinary committee made some scathing observations, too.
The Insolvency and Bankruptcy Board of India (IBBI) has started taking a sterner view of insolvency professionals violating the code, handing out harsher punishments that include extended periods of suspension and stiffer monetary penalties in an effort to bring more discipline and compliance with the law and set examples.
The regulator’s disciplinary committees suspended a couple of insolvency professionals for as long as three years through orders passed from the beginning of May. The registration of two professionals was cancelled in May.
While some professionals escaped without suspension or cancellation of their registration, they were censured and their activities brought under continuous vigil. Some were told that repetition of violations would be treated as wilful negligence.
The recent decisions – especially after the pandemic set in – mark a significant shift from the lenient view adopted earlier, when suspensions and debarments from accepting assignments rarely exceeded one year. Often in the past, the disciplinary committee cited lack of experience on the part of the professional and take a benign view of the breaches. Just one registration was cancelled in each of the past two years and four in 2018-19.
The recent orders suggest that the stance might be changing as the Insolvency and Bankruptcy Code (IBC) has entered the sixth year of implementation and some insolvency professionals were found to be repeating violations. Rules and regulations have also been tightened and the disciplinary committees were reconstituted in April, with one committee under chairman Ravi Mital and the other under whole-time member Sudhaker Shukla.
The harsher orders are being handed out because the violations were large in magnitude, an official at one of the insolvency professional agencies reckoned.
Of 19 cases decided by the reconstituted disciplinary committees between May 6 and July 5, eight professionals were suspended for one to three years and four were ordered to pay 25-50 percent of their fees as a penalty. Two had their registration cancelled.
In one instance, the insolvency professional was not only suspended for two years but also directed to pay a monetary penalty equivalent to the fee received as a resolution professional and liquidator.
Orders about the suspension of professionals are becoming more forthright now. The disciplinary committee made some scathing observations, too.
In a recent order, where an insolvency professional was fined 50 per cent of the fees received for various violations, the committee observed that though the resolution process had been scrapped, the professional could not be let off.
“Getting away with such a set of blatant contraventions will send a wrong signal and serve as a bad precedent,” the order stated.
The violations
In one case, the disciplinary committee cancelled a professional’s registration, saying he had rushed to liquidate the company without giving an opportunity for resolving or restructuring the ailing business.
“The decision of liquidation was taken without following the true spirit of resolving the corporate debtor as a going concern, which is the heart and soul of the code,” the order read. The professional was also guilty of violations such as including related parties of the company in the committee of creditors (CoC).
In another case of cancellation, the insolvency professional was found to have constituted the CoC with a related party while excluding the legitimate claims of a public sector bank (PSB) in the first meeting.
The IBC requires the CoC to be formed with financial creditors that are not related to the corporate debtor or the stressed company.
In one instance, the insolvency professional was handed a three-year suspension after being found guilty of removing some creditors from the CoC and revising the voting share for failing to pay up their share towards the cost of the insolvency resolution process. Such exclusions amount to depriving the financial creditors of the rights under the code and are not allowed.
One insolvency professional was held guilty of various charges including failure to follow a due process such as appointing registered valuers, wilful contravention of procedures in the code, violating the timeline for the insolvency resolution process and maintaining an incomplete register of creditors.
