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Disadvantages of fixing limits to the number of assignments for an Insolvency Professional

Recently, the Insolvency & Bankruptcy Board of India (IBBI) has proposed to issue guidelines for imposing a limit on the number of assignments to be handled by an Insolvency Professional (IP) at a certain point of time. Setting a limit on the number of assignments to be taken up by Insolvency Professionals (IPs) is an attempt to fix a system which is not broken.                

To begin with describing the recommendations of the IBBI in its Discussion Paper, the main argument of the Discussion Paper is that a Corporate Insolvency Resolution Process (CIRP) for a project should be completed in a time-bound manner as prescribed under the Code, i.e. within 180 days, which can be extended upto a period of 90 days. Time-bound completion of the Corporate Insolvency Resolution Process (CIRP) is the basis of the Insolvency & Bankruptcy Code, 2016. If an IP undertakes too many assignments at a given point of time, then it will not be able to devote the same time & energy to every assignment of CIRP. This will further result into a failure to achieve the objective of maximization of the value of assets of the Corporate Debtor (CD), as he makes payment for the CIRP process after the commencement of the CIRP.      

IBBI has used a criteria based on the annual turnover to prescribe limits on the number of assignments which can be taken up an Insolvency Professional as under:     

Turnover of the Corporate Debtor

No. of Assignments Permitted

Less than 1,000 crores

5

More than 1,000 crores but less than 5,000 crores

4

More than 5,000 crores but less than 10,000 crores

3

More than 10,000 crores

2

More than 50,000 crores

1

The manner in which these limits are to be operated has not been clarified by the IBBI, which will create a lot of confusion amongst the relevant stakeholders. It is not clear whether an Insolvency Professional, managing the CIRP of a Corporate Debtor whose turnover is more than Rs.50,000 crores will be able to take up the responsibility for the CIRP of a Corporate Debtor with a turnover of less than Rs.1,000 crores. Further, in a case, where an IP has ongoing assignments from two or more categories, the threshold to decide regarding the breach of prescribed limits shall be difficult to ascertain. Therefore, a clarification in this regard will be required.

The National Company Law Tribunal (NCLT) considers the existing engagements of an Insolvency Professional before the approval of its appointment as an Insolvency Resolution Professional (IRP). In the case of IDBI Bank Ltd. vs. Lanco Infratech Ltd., the Adjudicating Authority refused to approve the appointment of the IP proposed by the IDBI Bank, as it was already engaged in the CIRP for three large entities.

Analysis

The main objective of the IBBI’s proposal to limit the number of assignments by an Insolvency Professional, is to avoid delay due to an overburdened IP who agreed to undertake assignments beyond capacity. There are sufficient safeguards in the form of self-check procedures provided by the Adjudicating Authority & the Committee of Creditors (CoC), to ensure that this does not happen. Any measure which restricts the method through which the IPs take up assignments would cause a detrimental effect to the flexibility offered by the Code and to the objective of allowing the development of a free market for IPs. An IP should never fix what is not broken and IBBI’s Discussion Paper seems to be doing the same.                  

 

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