IBBI Simplifies Rules for Insolvency Professional Entities

The Insolvency and Bankruptcy Board of India (IBBI) has issued a circular on 1st February 2024 to provide clarity on some issues related to the role of Insolvency Professional Entities (IPEs) under the Insolvency and Bankruptcy Code, 2016 (IBC).

What are IPEs?

IPEs are entities that can act as Insolvency Professionals (IPs) under the IBC. IPs are individuals who are registered with IBBI and are authorized to conduct insolvency resolution processes for corporate and individual debtors. IPs have to follow the code of conduct and regulations prescribed by IBBI.

IPEs can be a company, limited liability partnership, registered partnership firm, or any other entity that is recognized by IBBI. IPEs can provide support services to IPs or act as IPs themselves. IPEs have to meet certain eligibility criteria and follow the regulations prescribed by IBBI.

What are the clarifications issued by IBBI?

IBBI has issued the following clarifications in its circular:

• In case of any contravention or disciplinary proceeding against an IPE acting as an IP, the show-cause notice will be issued to the partner or director of the IPE who is an IP and was authorized to sign and act on behalf of the IPE for the respective assignment. The show-cause notice may also be issued to the IPE itself if there are repeated instances of contravention or systemic failure on its part.
• The limit on the number of assignments that an IP can undertake will apply to each partner or director of an IPE who is an IP. The limit will not apply to the IPE as a whole.
• The requirement of obtaining prior consent from creditors before accepting any other assignment will apply to each partner or director of an IPE who is an IP. The consent will not be required from the creditors of the IPE itself.
• The requirement of disclosing any relationship with the stakeholders of a debtor will apply to each partner or director of an IPE who is an IP. The disclosure will not be required from the IPE itself.

What is the impact of these clarifications?

The clarifications issued by IBBI aim to simplify the regulatory framework of IPEs and ensure accountability and transparency in their functioning. The clarifications also seek to avoid any conflict of interest or misuse of power by IPEs or their partners or directors. The clarifications will help in enhancing the efficiency and effectiveness of the insolvency resolution processes under the IBC.