Fee and other Expenses incurred by Insolvency Professional for Corporate Insolvency Resolution Process-Circular by IBBI
Insolvency and Bankruptcy Board of India (IBBI) has issued circular on the subject of Fee and other Expenses incurred by Insolvency Professional for Corporate Insolvency Resolution Process
Under the Insolvency and Bankruptcy Code, 2016 (Code), when a corporate debtor undergoes corporate insolvency resolution process (CIRP), an Insolvency Professional (IP) is vested with the management of its affairs and he manages its operations as a going concern. He complies with the applicable laws on behalf of the corporate debtor. He conducts the entire CIRP. Such responsibilities of an IP require the highest level of professional excellence, dexterity and integrity. He needs to be compensated for his professional services commensurate to his ability, duties and responsibilities. He also needs to pay fee or incur other expenses for various goods and services required for conducting the CIRP and or managing the operations of the corporate debtor as a going concern.
IBBI had put out a discussion paper titled “Regulation of fee payable to insolvency professionals and other process costs under Corporate Insolvency Resolution Process” on its web site on 1st April, 2018 seeking comments thereon. The comments received from stakeholders have been considered in consultation with the Insolvency Professional Agencies.
As per the guidelines prescribed in the circular, the IP is required to ensure that:-
(a) the fee payable to him, fee payable to an Insolvency Professional Entity, and fee payable to Registered Valuers and other Professionals, and other expenses incurred by him during the CIRP are reasonable;
(b) the fee or other expenses incurred by him are directly related to and necessary for the CIRP;
(c) the fee or other expenses are determined by him on an arms’ length basis, in consonance with the requirements of integrity and independence;
(d) written contemporaneous records for incurring or agreeing to incur any fee or other expense are maintained;
(e) supporting records of fee and other expenses incurred are maintained at least for three years from the competition of the CIRP;
(f) approval of the Committee of Creditors (CoC) for the fee or other expense is obtained, wherever approval is required; and
(g) all CIRP related fee and other expenses are paid through banking channel
The IP has further been directed to ensure that:-
(a) no fee or expense other than what is permitted under the Code read with regulations made thereunder is included in the insolvency resolution process cost (IRPC);
(b) no fee or expense other than the IRPC incurred by the IP is borne by the corporate debtor; and
(c) only the IRPC, to the extent not paid during the CIRP from the internal sources of the Corporate Debtor, shall be met in the manner provided in section 30 or section 53, as the case may be.
It has been clarified that the IRPC shall not include:
(a) any fee or other expense not directly related to CIRP;
(b) any fee or other expense beyond the amount approved by CoC, where such approval is required;
(c) any fee or other expense incurred before the commencement of CIRP or to be incurred after the completion of the CIRP;
(d) any expense incurred by a creditor, claimant, resolution applicant, promoter or member of the Board of Directors of the corporate debtor in relation to the CIRP;
(e) any penalty imposed on the corporate debtor for non-compliance with applicable laws during the CIRP;
(f) any expense incurred by a member of CoC or a professional engaged by the CoC;
(g) any expense incurred on travel and stay of a member of CoC; and
(h) any expense incurred by the CoC directly
(i) any expense beyond the amount approved by the CoC, wherever such approval is required; and
(j) any expense not related to CIRP
Further, the IP has been directed to disclose fee and other expenses in the relevant Form to the Insolvency Professional Agency of which he is a member:
(a) for all concluded CIRPs by 15th July, 2018, and
(b) for ongoing and subsequent CIRPs within the time as specified in the relevant Form.
An Insolvency Professional Agency shall –
(a) disseminate the disclosures made by its IPs on an appropriate electronic platform within three working days of receipt of the same;
(b) monitor disclosures made by its IPs and submit a monthly summary of non-compliance by its IPs with this circular to the IBBI by 7th of the succeeding month;
(c) take appropriate measures to ensure compliance by its IPs.
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