Insolvency professionals divided over ban on resolution outsourcing

The insolvency regulator’s move to ban outsourcing of resolution work is primarily targeted at insolvency professional entities (IPEs), some experts said. However, others said this step by the Insolvency and Bankruptcy Board of India (IBBI) would affect individual resolution professionals (RPs) as well. 

It is aimed at ensuring that only RPs chair the committee of creditors meeting. Otherwise, the worry was that someone from resolution entities and not an RP would conduct these. In its circular, IBBI had said resolution services cannot be outsourced by insolvency professionals. Sources say it had found that heads of IPEs were chairing the committee of creditors meetings. Insolvency professionals who had taken up the project of reviving the company concerned are supposed to do so.

Sumant Batra, managing partner at Kesar Dass B and Associates, says, “The outsourcing part of the circular might be targeted at those insolvency professional entities who take up projects in the name of one resolution plan but all the functions of the resolution plans are practically performed by another person in the entity.” 

He thinks the circular will not affect hiring of consultants and legal advisors to assist in insolvency resolution. 

IBBI’s circular is not likely to affect the big 12 cases referred by banks on Reserve Bank of India order for insolvency, say experts, as IPEs are not involved in those cases.

On the negative side, insolvency professionals state this would make it difficult for them to hire auditors. Nilesh Sharma, senior partner with Dhir and Dhir Associates, says this would bring down the number of professionals in big cases where payment to the insolvency professional is huge as there are many people involved, as compared to smaller cases.

An insolvency professional is required to manage the operations of a defaulting corporate as a going concern. He or she is also required to invite resolution plans, examine these and present to the committee of creditors for its approval. 

The regulator has also issued orders for insolvency professionals to use only their official address for correspondence. The circular said, “It has been observed that a few insolvency professionals are using different addresses and emails while communicating with the stakeholders, despite repeated advice from IBBI to use the addressees and e-mails registered with the IBBI in all their communications.”

This has irked insolvency professionals. They feel the regulator is getting into micro management. One of them told Business Standard, “There could be technical difficulties for an insolvency professional to use a particular e-mail account. Because of this, he might choose to use another account which also ensures privacy.”