The insolvency regulator has asked all RPs to disclose their financial relationships with various stakeholders such as corporate debtors, financial creditors and potential buyers involved in the resolution process. Market participants say the move is aimed at preventing potential malpractices by RPs. In the recent past, there have been several cases in which resolution professionals have allegedly favored a particular party during the resolution process.
It has also specified what would be deemed to be a financial relationship. According to the July 4 notification, any such relationship must be disclosed in which the resolution professional or resolution entity receives more than 5% of revenue annually from the related party. Also, if the RP is a shareholder or a managerial person of an entity that is involved in the proceedings, it must be disclosed.
Kumar Saurabh Singh, partner at the law firm, said, “This move by IBBI is a positive step and will go a long way in ensuring that the CIRP (Corporate Insolvency Resolution Process) is conducted in a fair, transparent and non-arbitrary manner.” Khaitan & Co.
These disclosure rules, notified last week, also apply to direct relatives of RPs. Therefore, if the RP has a financial relationship with direct relatives such as spouse or children, it has to be disclosed.
Ashish Pahadia, Partner, DSK Legal said, “Independence of the resolution professional is very important for successful resolution of a stressed company, so is the independence of other professionals involved in such resolution process.” “The obligation to disclose the same to your insolvency professional entity within the specified time frame will also help the resolution professional to self-assess it in a timely manner and bring greater transparency in the entire process.”
Should be disclosed in a time bound manner as per the notification. For example, if the RP has a financial relationship with a corporate debtor, it should be disclosed within three days of his being appointed as an RP. If the professional has a relationship with a potential buyer, this must be disclosed within three days of the information memorandum being given to the potential buyer.
“These provisions can be strictly enforced so that potentially connected persons are appointed for the assignment,” said Sandeep Bajaj, managing partner.
Advocate and solicitor.
The insolvency regulator has changed the IBC rules over the past two months to streamline the process and improve the efficiency of the code. This was needed as many insolvency proceedings are getting delayed due to various systemic issues. While I have a plethora of cases National Company Law TribunalIn some cases the RP or potential buyers have resorted to allegedly frivolous litigation to delay the resolution.
“These changes will put an end to the practice of insolvency professionals submitting bills/invoices in the name of insolvency professional entities or other persons, as earlier lack of clarity provided a waiver which made it difficult to track/calculate the actual cost Services of an insolvency professional,” said Neha Naik, Associate Partner, Phoenix Legal.