Insolvency and Bankruptcy Regulations

• These regulations may be called the Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016
• The regulations came into force on November 29, 2016

Definitions within the Regulations

• Assignment means any assignment of an insolvency professional as interim resolution professional, resolution professional, liquidator, bankruptcy trustee, authorised representative or in any other role under the Code.
• Authorisation for assignment means an authorisation to undertake an assignment, issued by an insolvency professional agency to an insolvency professional, who is its professional member, in accordance with its bye-laws
• Bar Council means a Bar Council constituted under the Advocates Act, 1961 (25 of 1961)
• Certificate of registration means a certificate of registration granted by the Board under section 207 of the Code read with these Regulations
• Code means the Insolvency and Bankruptcy Code, 2016 (31 of 2016)
• Institute of Chartered Accountants of India means the Institute constituted under the Chartered Accountants Act, 1949 (38 of 1949)
• Institute of Cost Accountants of India means the institute constituted under the Cost and Works Accountants Act, 1959 (23 of 1959)
• Institute of Company Secretaries of India means the Institute constituted under the Institute of the Company Secretaries Act, 1980 (56 of 1980)
• Professional member means an individual or an insolvency professional entity recognised by the Board under regulation 13 who has been enrolled as a member of an insolvency professional agency

Insolvency Examinations

• The Board can conduct a 'National Insolvency Examination' to test the knowledge and practical skills in insolvency, bankruptcy and allied subjects, either on its own or through a designated agency.
• The board also conducts the Limited Insolvency Examination to test knowledge and application of knowledge in the areas of insolvency, bankruptcy and allied subjects, either on its own or through a designated agency
• The syllabus, format, qualifying marks and frequency of the Limited Insolvency Examination get published on the website at least three months prior

Eligibility for Registration as an Insolvency Professional

• An individual is ineligible if he is a minor or not a resident of India
• An individual is ineligible if they do not have the qualification and experience specified in Regulation 5 or Regulation 9
• An individual is ineligible if they have been convicted by a competent court, and a period of five years has not elapsed from the date of expiry of the sentence, punishable with imprisonment for a term exceeding six months or for an offence involving moral turpitude
  • A person who has been convicted of any offence and sentenced to imprisonment for a period of seven years or more is not eligible to be registered
• An individual is ineligible if the person is an undischarged insolvent, or has applied to be adjudicated as an insolvent
• An individual is ineligible if declared to be of unsound mind or is not a fit and proper person
• The Board may consider integrity, reputation/character, absence of convictions/restraint orders, and competence, including financial solvency and net worth in determining whether an individual is a fit and proper person

Insolvency Professional Entity Eligibility

• An insolvency professional entity recognized by the Board under regulation 13, cannot be registered, the entity and/or any of its partner or director is not a fit and proper person
  • According to clause (g) of sub-regulation (1)

Qualifications and Experience

• Required Qualifications:
  • Passing the Limited Insolvency Examination within twelve months before applying;
  • Completing a pre-registration educational course required by the Board in professional agency after enrollment
  • Successfully completing the National Insolvency Programme, or the Graduate Insolvency Programme approved by the Board; and experiences of:
    • Ten years in law after a Bachelor's; or in Management with a Master's or 2-year PG Diploma; or
    • Fifteen years in management after a Bachelor's from an approved institution/university; or
    • Ten years of experience as a chartered accountant, company secretary, cost accountant, or advocate.
• Only professional and managerial experience shall be considered
• When computing the total experience of 10 or 15 years under sub-clause (iii), experience of any period under sub-clause (iv) will be included
  • When computing the total experience of 10 years under sub-clause (iv), there should be included experience of any period under any of the items of that sub-clause.

Application for Certificate of Registration

• An individual enrolled with an insolvency professional agency can apply to the Board using Form A of the Second Schedule, along with a non-refundable application fee of twenty thousand rupees.
• An insolvency professional entity eligible for registration can apply to the Board using Form AA of the Second Schedule, along with a non-refundable application fee of two lakh rupees.
• Within seven days of receipt, the Board must acknowledge an application
• The Board may request additional documents, information, or clarification from the applicant within a reasonable time
• For clarification, the Board may require the applicant to appear in person or through an authorized representative

Certificate of Registration

• If the Board is satisfied, after inspection or inquiry, that the applicant is eligible, it may grant a certificate of registration to carry on the activities of an insolvency professional within sixty days of receipt, excluding time given to applicant for providing documentation
• The registration is subject to the conditions that the insolvency professional—shall must abide by the Code, rules, regulations, guidelines and bye-laws while enrolled:
  • shall undergo continuing professional education as required by the Board
  • shall not outsource any duties and responsibilities under the code, except those specifically permitted by the board
  • must pay fees of twenty thousand rupees for individuals, and two lakh rupees for entities every five years after the certificate is granted, on or before April 30th
• Additionally, the insolvency professional must pay a fee, calculated at 1% of their professional fee for services rendered in the preceding financial year, by April 30th each year with a statement in Form E of the Second Schedule
  • Must pay fee calculated at the rate of one per cent professional fee earned for services as an insolvency professional in the preceding financial year
  • Additionally, they must pay a fee based on regulation 31A(2) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, within 30 days per quarter
• Cannot render services as an insolvency professional unless they are a partner/director on the Board
• Must take prior permission from the Board for shifting between agencies and take adequate steps for grievance redressal
• Must maintain records of assignments for at least 3 years from completion; abide by the Code of Conduct, and adhere to other conditions by the Board and in the event of an insolvency entity, ensure assigned tasks are signed by one authorized to do so

Regulations Inapplicable to Insolvency Professional Entities

• Clause (ba) and clause (d) do not apply to an insolvency professional that is an insolvency professional entity

Authorisation for Assignment

• An insolvency professional cannot accept or undertake an assignment after December 31st, 2019 without a valid authorization for assignment on the date of acceptance or commencement
• This does not apply to assignments that insolvency professional was undertaking as on either December 31st, 2019, or the date of expiry of their authorisation for assignment

Refusal for Certification

• If the Board determines that registration should not be granted, they must communicate the reasons and give the applicant 15 days to explain why their application should be accepted
• This communication must be made within 45 days of receiving the application, excluding the time for additional documents
• After considering the explanation, the Board will communicate its decision to accept or reject the application within 30 days of receipt

Information an Insolvency Professional Agency Must provide

• The insolvency professional agency shall provide the Board when it issues, renews, suspends, cancels, or accepts the surrender of an authorisation for assignment, within one working day of taking such action

Disciplinary Proceedings

• Disciplinary proceedings will be conducted in accordance with the provisions of the Insolvency and Bankruptcy Board of India (Inspection and Investigation) Regulations, 2017

Recognition of Insolvency Professional Entities

• A company, a registered partnership firm or a limited liability partnership may be recognised as an insolvency professional entity, if its objective is to provide support services or carry on the activities, and has a net worth of at least one crore rupees
  • Majority of the equity and voting rights held by insolvency professionals, who are its directors if it is a company
  • Majority of capital contribution by insolvency professionals if it is a partnership
• The majority of its partners or directors must be insolvency professional
• None of its partners or directors can be partners or directors of another insolvency professional entity.
• Insolvency professional entities comply with clauses (b) and (c) on or before December 31st 2021
• An eligible person may apply for recognition in Form C of the Second Schedule with a fee of two lakh rupees
• Board shall acknowledge an application made under this regulation within seven days of its receipt
• The Board has the authority to request additional documents, inspect the applicant, and request any of the directors or partners of the applicant to appear for clarifications; This is necessary for considering the application

Regulations for Consideration Post Application

• The Board is satisfied to grant certificate within 60 days of receipt of application for being eligible, excluding the time the applicant takes to submit additional documents, information or clarification, or appear in person,
• If the recognition is not granted, the Board must communicate its opinion with reasons and allow the applicant 15 days to submit an explanation to form a final opinion
• The Board shall grant or reject the certificate of recognition within thirty days of receipt of the explanation, if any was submitted
• The Board shall grant a certificate of recognition as an insolvency professional entity under the clause(a) or (b) in Form D of the Second Schedule
• The recognition is subject to the entity continuing to meet requirements under Regulation 12
• The entity informs the Board, within thirty days, when an individual ceases to be its director/partner in Form F with a fee of two thousand rupees to the board, and must update information with the insolvency professional agency to update its register of professional members
• The entity pays to the Board, of April every year, at a rate of one per cent of the turnover from the services in the preceding financial year, with a statement in Form G
• Additionally, the professional entity must submit a compliance certificate in Form H, by October 15 each year, for the preceding financial year
• An insolvency professional entity will be jointly and severally liable for all actions of partners or directors as insolvency professionals, during the partnership or directorship
• The board can de-recognize an insolvency professional entity if they find that there is enough cause, by passing an order and stating the reason

Interest

• There is a simple interest rate of 12% p.a. on any unpaid fee amount if the Insolvency Professional entity, or Insolvency Professional delays payment of fee

Code of Conduct

• An insolvency professional must maintain integrity by being honest, straightforward, and forthright
• An insolvency professional must act with objectivity and ensure decisions are made without bias, conflict, or undue influence
• Disclose any conflicts of interest to stakeholders when found
• They should not acquire any of the debtors assets, directly or indirectly, or knowingly allow any relative to do so
• They must maintain their complete independence and execute the process independently without external influences, maintaining impartiality
• Disclose existence of any pecuniary/personal relationship with stakeholders that provides services to the corporate debtor
• Ensures that all disclosures are timely and correct by itself and other professionals on providing confirmation to its agency of being in the effect of arms length relationship
• Must not influence stakeholders in order to make unlawful gains, or cause any undue preference; An insolvency professional must maintain and upgrade their skills
• Inform such persons under the Code as required of a wrongful consideration of a fact he becomes aware of
• Must be timely and must not conceal any material information
• Must appear co-operate for any inspections or investigations carried out
• Must appear co-operate for any inspections or investigations carried out
• Maintain the confidentiality of the process
• Must refrain from accepting too many assignments, or be unable to devote adequate time to each assignment
  • Can have no more than 10 assignments and no more than 3 assignments which have admitted claims exceeding one thousand crore rupees each
• Must not engage in any employment when he holds a valid authorisation for assignment or is undertaking an assignment
  • They and their relatives must not accept any employment other than open competition/professional services (other than under the Code to a creditor (10%+ voting power, corporate debtor etc for 1 year after cessation)
• They must not provide any service to the assignment which is being undertaken by his relatives/related parties and conduct themselves in the reputation of their profession
• They must provide transparent service for remuneration of their worked
• They must also disclose the fee payable to the following groups and the agency should publish it on its website
  • Themselves
  • The IP Entity
  • The professionals in its agency
• bills/invoices raise their services under their name through banking channels and not accept fees/charges other than those disclosed and approved
• Exercise reasonable care while undertaking assignments or conducting processes.
• They cannot include amount of loss, into the liquidation cost/process caused on failure of compliance
• Not accept hospitality that can create undermined independence
• Not offer gifts or hospitality, intending to obtain advantages in a profession