ERGO analyzes the impact of development on business: IBBI’s attempt to formalize the fee structure for resolution professionals

Introduction

On September 13, the Board of Insolvency and Bankruptcy of India (IBBI) issued the Indian Insolvency and Bankruptcy Board (Insolvency Resolution Process for Corporate Persons) Regulations 2022 (Third Amendment) (CIRP Amendment Regulations) amending the Indian Board of Insolvency and Bankruptcy Regulations (Insolvency Resolution Process for Corporations (CIRP Regulations) Regulations 2016 and Regulations 2022 on Indian Council Insolvency and Bankruptcy (Insolvency Practitioners) (Second Amendment) (Intellectual Property Amendment Regulations) Amending Indian Council on Insolvency and Bankruptcy (Insolvency Practitioners) Regulations, 2016 (Intellectual Property Regulations).

The main changes brought about by the CIRP Amending Regulations and the IP Amending Regulations are as follows:

1. Regulations amending CIRP

a. Void of the CIRP Amending Regulations, Regulation 34B (Fees to be paid to the Interim Resolution Professional and the Resolution Professional) has been added to Chapter IX (Cost of the Insolvency Resolution Process) of the CIRP Regulations with an appendix II corresponding.

b. Rule 34B provides that the Interim Resolution Professional (IRP) or Resolution Professional (RP), appointed on or after October 1, 2022, will be paid a minimum monthly fee based on the quantum of admitted claims.

vs. The quantification indicated above must be in accordance with the newly annexed Annex II, in which the costs to be paid are directly proportional to the amount of the claim, as follows:

D. Relevantly, the CIRP amending regulation gives the plaintiff or the creditors’ committee (CoC) the discretion to set a higher amount of fees after taking into account the size and scale of the debtor company’s business activities. , sector of activity, level and complexity of economic activity, etc. and record the reasons why they set these higher fees.

e. The Regulation amending the CIRP also formalizes the existing practice of performance-related incentives payable to a resolution professional after the resolution plan has been approved by the Deciding Authority. The realizable value of such an incentive is inversely proportional to the time taken for resolution as shown below-

F. Similar to a resolution process, the CIRP Amendment Regulation also provides a performance-related incentive for the liquidation process, the fees for which may be paid to the liquidator at the rate of one percent of the amount by which the value of realization of the assets of the debtor company must be greater than the liquidation value.

2. Intellectual Property Amendment Regulations

The Intellectual Property Amendment Rule introduces Rule 26A which states that PRs may not share or accept fees or charges from named professional service and/or support providers under the CIRP process/ liquidation.

Comment

The CIRP Amendment Regulation is a step in the right direction, as an objective mechanism for determining the fees of a resolution professional would benefit all stakeholders and also protect resolution professionals from disciplinary proceedings. Another important aspect is that the necessary leeway has been left to the creditors’ committee to determine the fees of a resolution professional taking into account the complexity of the resolution process that it is proposed to be undertaken by this professional. . Additionally, with the increase in undue delays in the CIRP process, performance-related fees for the resolution professional/liquidator should act as an incentive for prompt resolution and are sure to promote maximization of value for the party. debtor company.

The issue of linking royalties payable to the PR with those of the service provider has been the subject of constant debate among industry players. The change proposed by the IP Amendment Regulations has the dual effect of standardizing the fee payable to the RP which is then deducted as a CIRP cost and of delineating the role of a resolution professional as a “designee” by the company debtor. Therefore, a clear distinction has now been created between the PR and the professional/support service provider, regardless of their affiliation.