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LATEST AMENDMENTS TO IBC REGULATIONS

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LATEST AMENDMENTS TO IBC REGULATIONS
Mr.M. GOVINDARAJAN By: Mr.M. GOVINDARAJAN
September 17, 2022
All Articles by: Mr.M. GOVINDARAJAN       View Profile
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Amendments

The Insolvency and Bankruptcy Board of India, on 13.09.2022 has brought amendments to the following regulations-

Not to accept or share any fees

Regulation 7(2) of the Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulation, 2016 provides the conditions for granting registration to the eligible person as ‘Insolvency Professional’.  One of the conditions is that the Insolvency Professional is to abide the Code of Conduct specified in First Schedule to these regulations.

Schedule I to the Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016 prescribes the Code of Conduct for Insolvency Professionals. Clause 26 provides that an insolvency professional shall not accept any fees or charges other than those which are disclosed to and approved by the persons fixing his remuneration.

Now the amendment proposes to insert Clause 26A which provides that an insolvency professional shall not accept /share any fees or charges from any professional and/or support service provider who are appointed under the processes.

Minimum fees for Insolvency Professionals

Regulation 33 of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 provides that the applicant, who initiated corporate insolvency resolution process, shall fix the expenses to be incurred by the Interim Resolution Process.  If the applicant has not fixed the expenses then the Adjudicating Authority may fix the said expenses.  The amount incurred by the applicant may be got reimbursed to the extent of Committee of Creditors ratifies. The amount of expenses ratified by the Committee of Creditors shall be treated as insolvency resolution process costs.  The expenses include the fee payable to the interim resolution professional or insolvency professional entity, professionals, if any, and other expenses to be incurred by the interim resolution professional.

Regulation 34 provides that the committee shall fix the expenses to be incurred on or by the resolution professional and the expenses shall constitute insolvency resolution process costs.

The amendment inserted a new Regulation 34B.  The said regulation provides that the fee of interim resolution professional or resolution professional, under regulation 33 and 34, shall be decided by the applicant or committee in accordance with this regulationBut the fee of the interim resolution professional or the resolution professional, appointed on or after 01.10.2022 shall not be less than the fee specified in clause 1 for the period specified in clause 2 of Schedule-II. 

The minimum fee payable to the Interim Resolution Professional or Resolution Professional shall be based on the quantum of claims received during the resolution process.  The fee structure is as detailed below-

  • If the claim is less than Rs.50 crores the minimum fee payable is Rs. 1 lakh per month;
  • If the claim is more than Rs.50 crores but less than or equal to Rs.500 crores the minimum fee payable is Rs.2 lakhs per month;
  • If the claim is more than Rs.500 crores but less than or equal to Rs.2500 crores the minimum fee payable is Rs.3 lakhs per month;
  • If the claim is more than Rs.2500 crores but less than or equal to Rs.10000 crores the minimum fee payable is Rs.4 lakhs per month;
  • If the claim is more than Rs.10000 crores the minimum fee payable is Rs. 5 lakhs per month.

The amendment also prescribes the period for which the minimum fee as aforesaid shall be eligible.   The minimum fixed fee shall be applicable for the period, from appointment as interim resolution professional or resolution professional, till the time of-

  • submission of application for approval of resolution plan under section 30;
  • submission of application to liquidate the corporate debtor under section 33;
  • submission of application for withdrawal under section 12A; or
  • order for closure of corporate insolvency resolution process;

whichever is earlier.

Incentive

The amendment proposed to give performance linked incentive fee to the resolution professionals. Two types of incentive payments are there-

  • performance linked incentive for timely resolution;
  • performance linked incentive for value maximization.

Timely resolution

 If the resolution plan is submitted to the Adjudicating Authority for its approval from the period of commencement of insolvency resolution process-

  • is less than or equal to 165 days the incentive is payable @ 1% of the realizable value, the amount payable to the creditors in the resolution plan approved;
  • is more than 165 days but less than or equal to 270 days the incentive is payable @ 0.75% of the realizable value;
  • is more than 270 days but less than or equal to 330 days incentive payable is 0.5%.

If the said period exceeds 330 days no incentive shall be payable to the insolvency professionals.

Value maximization

The performance-linked incentive fee for value maximization may be paid to the resolution professional at the rate of 1% of the amount by which the realizable value is higher than the liquidation value, after approval of the resolution plan by Adjudicating Authority on commencement of payment to creditors by the resolution applicant.

Illustration

The amendment furnishes one illustration in the said amendment Notification as detailed below-

A corporate debtor having liquidation value of twenty crore rupees was resolved and the realizable value to creditors was one hundred crore rupees. The resolution plan was submitted to the Adjudicating Authority on 170th day from the insolvency commencement date. The committee has decided to pay the performance-linked incentive fees under both categories.

In this case, fee payable to the resolution professional shall be-

  • Performance-linked incentive fee for timely resolution: 0.75% of Rs. 100 crore = Rs.75 lakh, and
  • Performance-linked incentive fee for value maximization: 1.00% of Rs. 80 crore (Rs.100 crore – Rs.20 crore) = Rs.80 lakh.

Higher fees

The applicant or the committee may decide to fix higher amount of fee for the reasons to be recorded, taking into consideration market factors such as size and scale of business operations of corporate debtor, business sector in which corporate debtor operates, level of operating economic activity of corporate debtor and complexity related to process. After the expiry of period for timely valuation of value maximization of Schedule-II, the fee of the interim resolution professional or resolution professional shall be as decided by the applicant or committee, as the case may be.

For the resolution plan approved by the committee on or after 01.10.2022, the committee may decide, in its discretion, to pay performance-linked incentive fee, not exceeding five crore rupees, in accordance with clause 3 and clause 4 of Schedule-II or may extend any other performance-linked incentive structure as it deems necessary.

Source for making payment

The fee under this regulation may be paid from the funds, available with the corporate debtor, contributed by the applicant or members of the committee and/or raised by way of interim finance and shall be included in the insolvency resolution process cost.

 

By: Mr.M. GOVINDARAJAN - September 17, 2022

 

 

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