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Insolvency and Bankruptcy Board of India - Discussion Paper

News and Press Release - Dated:- 2-4-2018 - Insolvency and Bankruptcy Board of India Discussion Paper 1st April, 2018 Regulation of fee payable to insolvency professionals and other process costs under Corporate Insolvency Resolution Process The Insolvency and Bankruptcy Code, 2016 (Code) provides for a class of regulated professionals, namely, Insolvency Professionals (IP), who constitute one of the four key pillars of the insolvency regime, other three being the Adjudicating Authority, the Ins .....

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vel of professional excellence and integrity. Keeping in view the job responsibilities of an IP, the law (Code, rules and regulations made and circulars and guidelines issued thereunder) provide that an individual with ten years of experience as a member of the Institute of Chartered Accountants of India, Institute of Company Secretaries of India, Institute of Cost Accountants of India or a Bar Council or with 15 years of experience in management is eligible for registration as an IP on passing .....

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vice. The Bankruptcy Law Reforms Committee (BLRC), which conceptualised the Code, considered this issue at length. It felt that the fee charged by a resolution professional (RP) would be as an outcome from market forces, and not set in the Code or provided in regulations. It dealt with fee for various processes under the Code. This note, however, limits discussion mostly to fee for CIRP. 3. The BLRC observed: The Committee is of the view that there should be no constraints on RP fees. In a compe .....

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rt of the records of the IRP, which is maintained in a public database by the Regulator. Since this will be recorded and disseminated for all professionals across all resolution cases, the potential customers can compare fees across professionals, along with all the other performance measures that are also maintained. This includes size of the insolvency being resolved, the days taken for resolution, the frequency with which entities are resolved and turn out to be successful turnarounds and the .....

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art of the IRPC. Section 5(13) of the Code reads as under: (13) insolvency resolution process costs means - (a) the amount of any interim finance and the costs incurred in raising such finance; (b) the fees payable to any person acting as a resolution professional; (c) any costs incurred by the resolution professional in running the business of the corporate debtor as a going concern; (d) any costs incurred at the expense of the Government to facilitate the insolvency resolution process; and (e) .....

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ium imposed under section 14(1)(d); (c) expenses incurred on or by the interim resolution professional to the extent ratified under Regulation 33; (d) expenses incurred on or by the resolution professional fixed under Regulation 34; and (e) other costs directly relating to the corporate insolvency resolution process and approved by the committee. b. Regulation 33 33. Costs of the interim resolution professional. (1) The applicant shall fix the expenses to be incurred on or by the interim resolut .....

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to insolvency professional entity, if any, and fee to be paid to professionals, if any, and other expenses to be incurred by the interim resolution professional. c. Regulation 34 34. Resolution professional costs.- The committee shall fix the expenses to be incurred on or by the resolution professional and the expenses shall constitute insolvency resolution process costs. Explanation- For the purposes of this regulation, expenses include the fee to be paid to the resolution professional, fee to .....

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identify specific sources of funds that will be used to pay the- (a) insolvency resolution process costs and provide that the insolvency resolution process costs will be paid in priority to any other creditor; ……………………………………………… 6. The Code of Conduct for IPs under the IBBI (Insolvency Professionals) Regulations, 2016 casts a duty on an IP to render services for a reason .....

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ngaged by him to the insolvency professional agency of which he is a professional member and the agency shall publish such disclosure on its website. 26. 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. 27. An insolvency professional shall disclose all costs towards the insolvency resolution process costs, liquidation costs, or costs of the bankruptcy process, as applicable, to all relevan .....

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by the IRP is ₹ 5 Crores till the First Committee of Creditors Meeting. Further it is noticed that fee for the subsequent months as IRP/RP on a per month basis is R. 1.75 Crores. The Adjudicating Authority has also noted that total outstanding debt amount from the Corporate Debtor is only ₹ 4.16 Crores (including interest and retention money). It is also observed that the fee proposed by IRP works out to ₹ 14.00 Crores approx., apart from other incidental expenses. 4. …& .....

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k to be handled. In view of the above we recommend the matter to IBBI for taking appropriate action/remedial measure against the proposed IRP including disciplinary action if any, as deemed fit. b. In the matter of Raj Steel v. Sanjay Strips Private Ltd. [CP(IB) No. 218/9/HDB/2017], 6. During the hearing held on 3rd November 2017, the Adjudicating Authority was shocked to notice the abnormally high fee structure of the proposed IRP… ………………… .....

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nnouncement etc. as mentioned above…. c. In the matter of Punjab National Bank vs. Divya Jyoti Sponge Iron Private Limited [CP(IB) No. 363/KB/2017], 22. However, before parting with, it is time to take judicial notice of fixation of exaggerated insolvency resolution cost inclusive of fixation of fees of resolution professional in a lump sum manner by the CoC with out applying its mind in regards the fate of corporate debtor, the volume, nature and complexity of CIRP. In many cases I have .....

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be affordable by the corporate debtor. Hopefully IBBI would consider the above said factors and would frame necessary regulations or guidelines in regards fixation of fees and resolution cost by a resolution professional. 8. There have also been instances of abnormally low fee charged by an IP. The Board had invited expression of interests from IPs to act as IRP in cases where the operational creditor has not proposed any IRP. In certain matters (Applied Electro Magnetics Pvt Ltd., Sanwud Shopp .....

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challenged the amount of fee before the Hon ble NCLAT. 10. It is thus clear that fee is an important component of the IRPC. It gets priority in payment over any other dues of the corporate debtor. The fee is paid for services of IPs and other professionals. These services are not standardised. The amount of effort required in a CIRP is quite different from that in another CIRP. It is difficult to prescribe a standard fee for the services of a professional. It is expected that the market would de .....

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lindia.com/uploads_insol/draft_best_practices/files/-1008.pdf] for the use of registered insolvency professionals being appointed as IRP or RP. This provides guidance on the factors to be considered by an IP while charging fee, factors to be considered for reimbursement of out-of-pocket expenses, provision of information before and after determination of fee, etc. For example, it provides that an insolvency professional should consider the following factors while determining the quantum of fee t .....

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when there is no transaction cost or transaction cost is negligible and the stakeholders have complete information. The first step to minimise the cost is identification of the elements of the cost associated with CIRP. An attempt has been made to identify these elements, which is at Annexure1. The next step is to make the data about cost and fee available in public domain for the market forces to determine the fees. The next step could be promotion of best practices. Thereafter specific regula .....

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features of the guide are: a. A liquidator, voluntary administrator or deed administrator is entitled to be paid reasonable fees, or remuneration, for the necessary work he properly performs, once the fee has been approved by creditors, a committee of inspection or a court, and to be reimbursed for out-of-pocket costs incurred in performing his role. b. Out-of-pocket costs that are commonly reimbursed include external services (legal fees; valuer s, real estate agent s and auctioneer s fees; tra .....

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tion have passed a resolution. d. Fees may be calculated using one of a number of different methods, such as: (a) on the basis of time spent by the external administrator and his staff; (b) a quoted fixed fee, based on an upfront estimate; and (c) a percentage of asset realisations. e. Charging on a time basis is the most common method. If an external administrator seeks approval for charging wholly or partly on a time basis, and the work is yet to be carried out, the approval sought must includ .....

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ator s remuneration is set out in Rule 2.106 of the Insolvency Rules 1986, which states that it shall be fixed: (a) as a percentage of the value of the property which the administrator has to deal with, (b) by reference to the time properly given by the administrator and his staff in attending to matters arising in the administration, or (c) as a set amount. Any combination of these bases may be used to fix the remuneration, and different bases may be used for different things done by the admini .....

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; (d) the value and nature of the property which the administrator has to deal with. A Creditors Guide to Administrators Fees [https://www.r3.org.uk/media/documents/publications/professional/Guide_to_Administrators_Fees.pdf] helps creditors to be aware of their rights under the legislation to approve and monitor fees, explains the basis on which fees are fixed and how creditors can seek information about expenses incurred by the administrator and challenge those they consider to be excessive. C. .....

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n such services; b. the rates charged for such services; c. whether the services were necessary to the administration of, or beneficial at the time at which the service was rendered toward the completion of, a case under this title; d. whether the services were performed within a reasonable amount of time commensurate with the complexity, importance, and nature of the problem, issue, or task addressed; e. with respect to a professional person, whether the person is board certified or otherwise h .....

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e stakeholders through public consultation. It believes that public consultation enables collective choice and imparts legitimacy to decisions. In this spirit, the Board invites comments as under: i. Whether the elements of costs listed in Annexure-1 are comprehensive? Are the elements of costs / fee classified / grouped appropriately? Please suggest modifications. ii. Should the elements of the IRPC, including fee payable to IPs, Insolvency Professional Entities (IPEs) and other Professionals, .....

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ould the fee payable for various services under CIRP be further (beyond disclosures and best practices) regulated? If so, how should the fee payable to the IRP/RP, IPE and professionals engaged under CIRP be regulated? Should there be a ceiling, a floor or a band for fee payable to the IRP/RP, IPE and other professionals. Should it be a percentage linked to some variable of the corporate debtor? Should it be decided based on estimation of man hours of services required in a CIRP? Please elaborat .....

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is demitting office as IRP) Sl. No Particulars Description 1 Name of the Corporate Debtor 2 CIN of the Corporate Debtor 3 Date of CIRP Commencement 4 Assets (Rs. crore) as on the last balance sheet date (write date here) 5 Turnover (Rs. crore) in the last financial year (write year here) 6 No. of workmen as on the date of commencement of CIRP 7 No. of employees as on the date of commencement of CIRP 8 Number of Claimants 8 Total amount of claims (Rs. crore) admitted 9 Name of IRP 10 IP Registrat .....

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sional Fee Payable to Accounting and Finance Professional Fee Payable to Audit Professional Fee Payable to Legal Professional Fee Payable to any other Professional Other Expenses on / for Professionals (travel, stay, security, etc.) CoC Expense for Meeting Venue Expense for Electronic Voting Expenses on Travels, etc. Other Expenses Expenses on Public Announcement Expenses for Filings before Adjudicating Authority Expenses for Verification of Claims Other expenses, if any Running Business Essenti .....

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ed by the RP within seven days of his demitting office as RP or of expiry of CIRP period, whichever is earlier) Activity Expense Major Head Expenses Amount of Expense (Rs.) Approved by CoC (Yes / No) Running Process RP Fee Payable to RP Other Expenses on / for RP (travel, stay, security, etc.) IPE Fee, if any, Payable to an IPE for support services Registered Valuer Fee Payable to Valuer 1 Fee Payable to Valuer 2 Fee Payable to Valuer 3, if any Other Expenses related to Valuation Other Professio .....

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ions Expense related to Extortionate Transactions Expense related to Fraudulent Transactions Resolution Plan Expense related to Invitation of EoI Expense related to Identification of Prospective Resolution Applicants Expense relating to Invitation of Resolution Plans Other Expenses Expenses related to Filings before Adjudicating Authority Any other expense related to Process Running Business Essential Services Electricity Water Telecommunication Services Information Technology Services Other Ess .....

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