Insolvency professionals (IP) may soon have to obtain a ‘certificate of practice’ (CoP) to be able to work as resolution professionals, interim resolution professionals or liquidators.
Insolvency regulator IBBI proposes to amend the existing IP regulations so as to, among other things, introduce the concept of CoP for IPs. Every registered IP needs to have a CoP and get it renewed every year from its Insolvency Professional Agency (IPA), according to IBBI’s proposal.
IBBI is of the view that an arrangement of CoP will improve monitoring of practising IPs and avoid unnecessary disciplinary processes.
It will enable a registered IP to commence and quit practice as and when he wishes. This will, however, increase the responsibility on IPAs, which is, in fact, desirable, IBBI has said.
Commenting on the proposal, L Charanya, Partner, Lakshmikumaran & Sridharan, a law firm, said that requiring a CoP will ensure that the IP submits to mandatory regulation by the IBBI and the IPA and the IPs who have disciplinary action pending against them would not be able to accept new cases.
The renewal of the CoP on an annual basis is in line with the practice for Chartered Accountants as well as Cost Accountants, she said. However, the requirement to be “a fit and proper person” may become contentious unless some guidelines are also provided, keeping in line with the object of timely completion of the CIRP, Charanya said.
Aseem Chawla, Managing Partner, ASC Legal, a law firm, said “the move for conferring Certificate of Practice and bringing code of ethics to evaluate situation of conflicts is indeed a welcome step aimed at augmenting professional practice levels of the insolvency professionals.”
Conflict of interest
The Insolvency and Bankruptcy Board of India (IBBI) has also proposed changes to the IP regulations to address the ‘conflict of interest’ issues.
IBBI proposes to prohibit IPs, their relatives and related parties from acting as an IRP/rp/Liquidator in a process where any of them have rendered professional services in any other capacity in connection with the process. They would also be prohibited from rendering professional services in any other capacity in connection with a process if any of them is acting as an IRP/RP/Liquidator in this process, according to the IBBI proposal.
Charanya felt that instead of it being a personal conflict check, the amendment seeks to cover cases dealt with by relatives of the IP also as conflicts of interest.
This, though seeking to curb unfair practices by IPs, may unduly hamper the work done by genuine and sincere IPs. It is suggested that an additional criterion of close business association between the relatives may also be built in so that the provision is not challenged as being arbitrary, she added.
Upper age limit
IBBI has proposed that IPs above the age of 70 years may not be issued CoP and they may not be allowed to take up processes in their own name. However, they may support younger IPs or work for Insolvency Professional Entity (IPEs) in employment.
Saurav Kumar, Partner, Induslaw, a law firm, said that the introduction of COP will certainly improve the quality of the RPs, which will enhance the overall experience of a CIRP process. However, since the certificate is required to be renewed year on year it needs to be ensured that the process of such renewal doesn’t itself become bureaucratic causing uncertainty in the availability of RPs, he said. Clearly objective criteria should be laid out for renewals, he added.
Source- Business Line.