 "A new profession is about to be born")
The Institute of Chartered Accountants of India (ICAI) and the Institute of Company Secretaries of India (ICSI) are in the process of registering the first Insolvency professional agencies (IPA). Both professional bodies have floated Section 8 (not-for-profit) companies with their registered members as directors, leaders of these bodies told Business Standard.
“We have registered a company with three of the council members as directors. We have applied for registration with IBBI (Insolvency and Bankruptcy Board of India),” said M Devaraja Reddy, president, ICAI told Business Standard. The ICAI sponsored IPA will be called Indian Institute of Insolvency Professionals of ICAI.
As the government is keen on making the corporate insolvency and liquidation framework under the bankruptcy code operational by December, incorporation and other clearances have been fast-tracked. The framework governing individuals is likely to be taken up at a later stage.
ICSI President Mamta Binani said ICSI Insolvency Professional Agency has already received licences required for Section 8 companies. “We are expecting the certificate of incorporation soon,” Binani said. The IPAs will be the first level regulators under the new bankruptcy code and play role akin to the stock exchanges in the securities market. They will register and regulate insolvency professionals, who will be the key service providers in the new process.
In addition to their regulatory role, the IPAs would also have the duties of educating the professionals, conduct examinations and administer the code of conduct prescribed under the Act. Both these intermediaries will be regulated by the IBBI.
IBBI itself resembles the market regulator with the chairman heading a board constituting three whole time members and part time members from finance ministry and ministry of corporate affairs. The government is in the process of finalizing the appointments of whole time members.
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Officials said these two IPAs will carry the responsibility of the building the market in the initial months given the criteria established.
According to the recently notified regulations, companies are not allowed to float IPAs. The IPAs are required to have a paid up capital of Rs 5 crore and a minimum net worth of twice that sum. Foreign investment is capped at 49 per cent and the control is required to be with residents. Experts say though the structures resemble the market regulator Sebi, the new regulator is a refined version. Several process improvements such as simpler and easy to understand regulations and involvement of professionals in first-level regulations contemplated by the existing regulators were already built in.
“The insolvency framework is a four-wheeler,” said Vineet K Chaudhary, one of the directors in the newly formed ICSI IPA. Apart from the IBBI and the twin service providers of IPAs and IPs, the framework also includes National Company Law Tribunal and Debt Recovery Tribunal, whose approvals are required at key stages of the insolvency process. The information utilities, which will essentially be a comprehensive and independent database of all financial data of the lenders and borrowers, will form the fourth wheel.
Chaudhary said these four will have to work in concert to ensure the smooth functioning of the process. “The key is that this will be a time bound process.”
The insolvency professionals, who take over the affairs of the company once the insolvency proposal is cleared by National Company Law Tribunal /Debt Recovery Tribunal, will have 180 days. Failing to meet the deadline could lead to the liquidation of the company.
“We have cases of winding up that are pending for years in the courts. The paradigm the code envisages and seeks to create is at a different level. This is like an entry point to the digital economy,” said SN Ananthasubramanian, a senior company secretary.
Adding that there was a near-perfect alignment between the regulations released and the objective of the code, he said, “Now that the framework is ready, the real challenge would be to find the right people to populate the critical roles as insolvency professionals and motivate them to perform these functions.”
Professional bodies expect thousands of professionals such as chartered accounts, company secretaries, lawyers and cost accountants would meet the initial eligibility criteria and a few hundreds to enrol in the first six months.
When would the first company come up for insolvency? Chaudhary said, “NCLT is already functional. Once the framework gets going, it is just a matter of time.” A new breed of professionals is about to be born.