Code of Conduct for Insolvency Professionals : IBBI (IPs) Regulations, 2016

 

There is an age-old saying that “With great power comes great responsibility”. Likewise, the role played by the Insolvency Professional is the stepping stone to the successful completion of the Corporate Insolvency Resolution Process or Liquidation Process. There are many powers that have been enjoyed by the Insolvency Professionals. Therefore, there are greater chances that such powers could be misused by the Insolvency Professional. So, to cut down the shortest of the possibility of such misuse or abuse of powers by the Insolvency Professional, The IBBI has notified the Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016, wherein, Regulation 7 (2) lays down eleven conditions that have to be met by the Insolvency Professionals after their registration. They are:

1.    at all times abide by the Code, rules, regulations, and guidelines thereunder and the bye-laws of the insolvency professional agency with which he is enrolled;  

2.    at all times continue to satisfy the requirements under Regulation 4;  

3.    undergo continuing professional education, as may be required by the Board;  

4.    not outsource any of his duties and responsibilities under the Code, except those specifically permitted by the Board. 

5.    pay to the Board, a fee of ten thousand rupees, every five years after the year in which the certificate is granted and such fee shall be paid on or before the 30^th April of the year it falls due; 

6.    pay to the Board, a fee calculated at the rate of 0.25 percent of the professional fee earned for the services rendered by him as an insolvency professional in the preceding financial year, on or before the 30^th of April every year, along with a statement in Form E of the Second Schedule; 

7.    not render services as an insolvency professional unless he becomes a partner or director of an insolvency professional entity recognised by the Board under Regulation 13, if he is not a citizen of India;  

8.    take prior permission of the Board for shifting his professional membership from one insolvency professional agency to another, after receiving no objection from both the concerned insolvency professional agencies;  

9.    take adequate steps for redressal of grievances; 

10.    maintain records of all assignments undertaken by him under the Code for at least three years from the completion of such assignment;  

11.    abide by the Code of Conduct specified in the First Schedule to these Regulations; and (i) abide by such other conditions as may be imposed by the Board.

 

Code of Conduct

The First Schedule to the Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016 provides detailed Code of Conduct for Insolvency Professionals. They are:

 

1.    Integrity and objectivity.  

a)    An insolvency professional must maintain integrity by being honest, straightforward, and forthright in all professional relationships.  

b)    An insolvency professional must not misrepresent any facts or situations and should refrain from being involved in any action that would bring disrepute to the profession.  

c)    An insolvency professional must act with objectivity in his professional dealings by ensuring that his decisions are made without the presence of any bias, conflict of interest, coercion, or undue influence of any party, whether directly connected to the insolvency proceedings or not. 

d)    An insolvency professional must disclose the details of any conflict of interests to the stakeholders, whenever he comes across such conflict of interest during an assignment.

e)    An insolvency professional appointed as an interim resolution professional, resolution professional, liquidator, or bankruptcy trustee should not himself acquire, directly or indirectly, any of the assets of the debtor, nor knowingly permit any relative to do so.  

 

2.    Independence and impartiality.  

a)    An insolvency professional must maintain complete independence in his professional relationships and should conduct the insolvency resolution, liquidation or bankruptcy process, as the case may be, independent of external influences.  

b)    In cases where the insolvency professional is dealing with assets of a debtor during liquidation or bankruptcy process, he must ensure that he or his relatives do not knowingly acquire any such assets, whether directly or indirectly unless it is shown that there was no impairment of objectivity, independence or impartiality in the liquidation or bankruptcy process and the approval of the Board has been obtained in the matter.  

c)    An insolvency professional shall not take up an assignment under the Code if he, any of his relatives, any of the partners or directors of the insolvency professional entity of which he is a partner or director, or the insolvency professional entity of which he is a partner or director is  not independent, in terms of the Regulations related to the processes under the Code, in relation  to the corporate person/ debtor and its related parties.  

d)    An insolvency professional shall disclose the existence of any pecuniary or personal relationship with any of the stakeholders entitled to distribution under sections 53 or 178 of the Code, and the concerned corporate person/ debtor as soon as he becomes aware of it, by making a declaration of the same to the applicant, committee of creditors, and the person proposing appointment, as applicable.  

e)    An insolvency professional shall disclose as to whether he was an employee of or has been in the panel of any financial creditor of the corporate debtor, to the committee of creditors and to the insolvency professional agency of which he is a professional member and the agency shall publish such disclosure on its website.

f)     An insolvency professional shall not influence the decision or the work of the committee of creditors or debtor, or other stakeholders under the Code, so as to make any undue or unlawful gains for himself or his related parties, or cause any undue preference for any other persons for undue or unlawful gains and shall not adopt any illegal or improper means to achieve any mala fide objectives.

  

3.    Professional competence:  An insolvency professional must maintain and upgrade his professional knowledge and skills to render competent professional service.  

 

4.    Representation of correct facts and correcting misapprehensions.  

a)    An insolvency professional must inform such persons under the Code as may be required, of a misapprehension or wrongful consideration of a fact of which he becomes aware, as soon as may be practicable.  

b)    An insolvency professional must not conceal any material information or knowingly make a misleading statement to the Board, the Adjudicating Authority or any stakeholder, as applicable.  

5.    Timeliness.  

a)    An insolvency professional must adhere to the time limits prescribed in the Code and the rules, regulations and guidelines thereunder for insolvency resolution, liquidation or bankruptcy process, as the case may be, and must carefully plan his actions, and promptly communicate with all stakeholders involved for the timely discharge of his duties.  

b)    An insolvency professional must not act with mala fide or be negligent while performing his functions and duties under the Code.  

 

6.    Information management.  

a)    An insolvency professional must make efforts to ensure that all communication to the stakeholders, whether in the form of notices, reports, updates, directions, or clarifications, is made well in advance and in a manner which is simple, clear, and easily understood by the recipients.  

b)    An insolvency professional must ensure that he maintains written contemporaneous records for any decision taken, the reasons for taking the decision, and the information and evidence in support of such decision. This shall be maintained so as to sufficiently enable a reasonable person to take a view on the appropriateness of his decisions and actions.  

c)    An insolvency professional must not make any private communication with any of the stakeholders unless required by the Code, rules, regulations and guidelines thereunder, or orders of the Adjudicating Authority.  

d)    An insolvency professional must appear, co-operate and be available for inspections and investigations carried out by the Board, any person authorised by the Board or the insolvency professional agency with which he is enrolled.  

e)    An insolvency professional must provide all information and records as may be required by the Board or the insolvency professional agency with which he is enrolled.  

f)     An insolvency professional must be available and provide information for any periodic study, research and audit conducted by the Board.  

 

7.    Confidentiality: An insolvency professional must ensure that confidentiality of the information relating to the insolvency resolution process, liquidation or bankruptcy process, as the case may be, is maintained at all times. However, this shall not prevent him from disclosing any information with the consent of the relevant parties or required by law.  

 

8.    Occupation, employability and restrictions.

a)    An insolvency professional must refrain from accepting too many assignments, if he is unlikely to be able to devote adequate time to each of his assignments.

b)    Clarification: An insolvency professional may, at any point of time, not have more than ten assignments as resolution professional in the corporate insolvency resolution process, of which not more than three shall have admitted claims exceeding one thousand crore rupees each.

c)    An insolvency professional must not engage in any employment when he holds a valid authorisation for assignment or when he is undertaking an assignment. 

d)    Where an insolvency professional has conducted a corporate insolvency resolution process, he  and his relatives shall not accept any employment, other than an employment secured through open  competitive recruitment, with, or render professional services, other than services under the Code, to  a creditor having more than ten percent voting power, the successful resolution applicant, the corporate  debtor or any of their related parties, until a period of one year has elapsed from the date of his  cessation from such process.  

e)    An insolvency professional shall not engage or appoint any of his relatives or related parties, for or in connection with any work relating to any of his assignment.  

f)     An insolvency professional shall not provide any service for or in connection with the assignment which is being undertaken by any of his relatives or related parties.  

g)    An insolvency professional must not conduct business which in the opinion of the Board is inconsistent with the reputation of the profession.  

 

9.    Remuneration and costs.  

a)    An insolvency professional must provide services for remuneration which is charged in a transparent manner, is a reasonable reflection of the work necessarily and properly undertaken, and is not inconsistent with the applicable regulations.  

b)    An insolvency professional shall disclose the fee payable to him, the fee payable to the insolvency professional entity, and the fee payable to professionals engaged by him to the insolvency professional agency of which he is a professional member and the agency shall publish such disclosure on its website.

c)    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.  

d)    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 relevant stakeholders, and must endeavour to ensure that such costs are not unreasonable.  

10.    Gifts and hospitality.  

a)    An insolvency professional, or his relative must not accept gifts or hospitality which undermine or affects his independence as an insolvency professional.  

b)    An insolvency professional shall not offer gifts or hospitality or a financial or any other advantage to a public servant or any other person, intending to obtain or retain work for himself, or to obtain or retain an advantage in the conduct of profession for himself.

 

Conclusion

In the end, it can be said that the powers of the Insolvency Professionals are restricted by the Code of Conduct for Insolvency Professionals and if any person felt aggrieved by the functioning of an Insolvency Professional then such person has all the right to file a complaint to the Board. Therefore, to achieve the objectives, an Insolvency Professional has to comply with the code of conduct.