This article on ‘Insolvency Professionals in India: All You Need to Know’ was written by Shruti Pandey an intern at Legal Upanishad.
INTRODUCTION
Insolvency laws have an intriguing history that dates back to the famous Magna Carta proclaimed in England in 1215 AD. It included a clause that protected people’s lands from being seized by the Crown if they found themselves unable to repay their debts. Over time, as socio-economic conditions changed and debtors’ prisons fell out of favour, a more compassionate approach to handling insolvency emerged. This article explores the fascinating history, roles, and challenges faced by insolvency professionals, with a specific focus on the insolvency laws in India.
INSOLVENCY PROFESSIONALS IN INDIA
Recognizing the need for comprehensive insolvency reforms, India enacted the Insolvency and Bankruptcy Code in 2016. The IBC aimed to establish a unified, comprehensive, and internally consistent law governing insolvency resolution. To facilitate the resolution process, the code introduced the concept of Insolvency Professionals (IPs).
“As per the Insolvency and Bankruptcy Code, 2016 (the Code), an insolvency professional (IP) means an eligible person:
- enrolled with an insolvency professional agency (IPA) as its member and,
- registered with Insolvency and Bankruptcy Board of India (IBBI/the Board) as an insolvency professional (IP)”.
QUALIFICATIONS AND ROLE OF INSOLVENCY PROFESSIONALS
Becoming an IP in India requires meeting the qualifications set by the Insolvency and Bankruptcy Board of India (IBBI). The eligible professionals include Chartered Accountants, Company Secretaries, Cost Accountants, Lawyers, and individuals with managerial experience. These professionals must possess a deep understanding of law, finance, company affairs, and economics. This knowledge serves as the foundation for their role in implementing the IBC and effectively handling insolvency proceedings.
Limited Insolvency Examination
As part of the qualification process, IPs are required to pass the Limited Insolvency Examination. This examination evaluates their knowledge of economics, finance, accounts, and law, as well as their understanding of the IBC and its practical application. Clearing this examination within the last year is a prerequisite for IP registration. It serves as a mechanism to assess an individual’s understanding of the IBC and their ability to apply it to real-life scenarios.
REGISTRATION AND REGULATION OF IPS
Registration as an IP is a crucial step for professionals entering the field. The number of registered IPs in India has steadily increased since the enforcement of the IBC. The Insolvency and Bankruptcy Board of India (IBBI) and Insolvency Professional Agencies (IPAs) play a vital role in regulating IPs and maintaining professional standards. IPs are expected to adhere to a Code of Conduct, which encompasses integrity, reputation, and competence in their work. The IBBI and IPAs monitor the conduct of IPs and investigate any misconduct, ensuring the highest standards of professionalism.
CHALLENGES FACED BY INSOLVENCY PROFESSIONALS
Insolvency professionals encounter various challenges in their roles. Managing workloads efficiently poses a significant hurdle as the number of insolvency cases continues to rise. Juggling multiple assignments simultaneously can impact the timely resolution of cases and the quality of their work. Additionally, securing cooperation from stakeholders, including former management and employees of the corporate debtor, is crucial for smooth proceedings. IPs must navigate these challenges while ensuring effective decision-making and striking a balance between the interests of different stakeholders.
SUGGESTIONS FOR THE DEVELOPMENT OF INSOLVENCY LAWS AND INSOLVENCY PROFESSIONALS
- ENCOURAGING SPECIALIZATION: It’s important to recognize the expertise of insolvency professionals in specific areas like personal insolvency, corporate insolvency, cross-border insolvency, and group insolvency. By allowing them to specialize, we can ensure that the right professionals are assigned to handle relevant cases. This specialization will enable them to bring in-depth knowledge and experience to the table, leading to more effective outcomes.
- ESTABLISHING TRANSPARENT GUIDELINES: Transparency and fairness should be key principles in the appointment process for insolvency professionals. It’s important to have clear guidelines and standardized procedures in place, ensuring a transparent and competitive selection process. By considering relevant experience and expertise, we can instill confidence among stakeholders and maintain the integrity of the profession.
- MANAGING WORKLOAD EFFECTIVELY: Insolvency professionals should be mindful of their workload to ensure the quality and timeliness of their work. Establishing guidelines or regulations that address workload management can help professionals allocate sufficient time and resources to each case. This will enable them to provide comprehensive support and deliver favourable outcomes for all parties involved.
- ADDRESSING GENDER DISPARITIES: It’s crucial to address gender disparities within the insolvency profession. Initiatives such as mentorship programmes, scholarships, and awareness campaigns can promote greater representation and participation of women in the field. By creating an inclusive and diverse environment, we can tap into the talents and perspectives of all professionals, ensuring equal opportunities for everyone.
- CONTINUOUS EVALUATION AND FEEDBACK: Regular evaluation and feedback mechanisms should be implemented to assess the performance of insolvency professionals. Conducting stakeholder surveys, case reviews, and independent assessments will provide valuable insights for improvement. This will help professionals enhance their skills and maintain the highest standards of professionalism in their work.
CONCLUSION
Insolvency professionals play a crucial role in the efficient and effective resolution of insolvency cases. Their qualifications, adherence to professional standards, and ability to balance the interests of various stakeholders are essential for successful insolvency resolution processes. As India’s insolvency regime continues to evolve, it is imperative for IPs to remain adaptable, specialized, and prepared to tackle future challenges. By upholding the highest standards of professionalism and ethics, insolvency professionals contribute to the stability and fairness of the insolvency system in India.
REFERENCES
- Abhishek Mittapally and Kokila Jayaram, “A Study of Insolvency Professionals in India”, IBBI, available at: https://www.ibbi.gov.in/uploads/resources/5c294e84ddeee6bcd1cda3ee147f220a.pdf
- “Insolvency Professional – Meaning, Eligibility & Qualification”, ClearTax, 12 October 2021, available at: https://cleartax.in/s/insolvency-professional
- Aravind Gayam, “The Insolvency and Bankruptcy Code: All you need to know”, PRS India, 10 May 2016, available at: https://prsindia.org/theprsblog/the-insolvency-and-bankruptcy-code-all-you-need-to-know?page=2&per-page=1