Certificate of Practice for Insolvency Professionals
Bhumesh Verma 22 May 2019

Certificate of Practice for Insolvency Professionals

Ever since the implementation of the Insolvency and Bankruptcy Code (IBC), qualified Insolvency Professionals (IP) have garnered a vital role in the Corporate Insolvency Resolution Process (CIRP). As a matter of fact, IPs are among the most important intrinsic parts of the entire CIRP ecosystem for the company facing IBC proceedings.

With the intent to bring about more accountability in the IPs fraternity - Insolvency and Bankruptcy Board of India (IBBI) is considering making it mandatory for the IPs to procure the certificate of practice (COP) in order to be qualified to practice as resolution/interim resolution professionals or liquidators.

The underlying intent is to reinforce the eligible parameters for IPs and to take the monitoring system of the IP’s functionality to next level. As per the proposal, each registered IP will be forced to procure a COP and get the renewal of such COP from Insolvency Professional Agency (IPA) on an annual basis.

The provision of renewal on annual basis is on equal footing with the line of practice for Chartered Accountants and Cost Accountants.

The advantage of COP system is that it will act as a regulatory check on IPs and make them more vigilant/responsible about performing their duties. Mandatory prerequisite of a COP will guarantee that the IPs against whom disciplinary action is pending won’t be competent to accept new cases.

IPs can barely afford any margin for error in discharging their duties/responsibilities as any sort of negligence will result in non-renewal of COP and will rule out such IPs from practicing as a resolution professional.

From the insolvency professional perspective, it will endow such professional with the option to decide (to renew or not to renew) the COP.

However, absence of specific guidance in relation to the requisite “A fit and proper person” could become contentious – It is imperative to issue certain guidelines in this regard to be content with the prospect of timely resolution of CIRP.

Besides, IBBI has also proposed certain modifications to IP regulations to accommodate the ‘Conflict of Interest’ issues.

The proposal to prohibit IPs, their relatives and related parties from practicing as resolution professional/liquidator in a transaction provided such persons have rendered professional services in other capacity in the said transaction is under consideration with the IBBI.

As a downside, inclusion of the transactions associated with the IP’s relatives under the realm of conflict of interest may disproportionately impede the functionality of the genuine/sincere IPs.

IBBI should formulate additional criteria in relation to close business association amid IPs and their relatives to strike right balance amid the functionality of IPs and relatives in related party transactions without compromising the real crux of the IBBI proposals.

Another proposal which is on the cards is that the refusal of COP renewal to the IPs professionals aged above 70 years with the target to encourage younger IPs and enable the young guns to flourish in the IPs regime with the assistance of senior IPs.

Inception of COP is quite likely to augment the quality of resolution professionals’ work and will reinforce the success prospects of CIRP process to next level.

However, renewal of COP on annual basis may act as an irritant and a cause for concern as such provision could make the renewal process unyielding and cumbersome for the IPs resulting in uncertainty in the accessibility of IPs. It is necessary to establish clear cut guidelines in relation to renewal process to ensure that renewal process won’t be a burdensome affair to qualified IPs.

The proposal of COP and associated prospects should serve as an additional layer of scrutiny and bring more transparency/accountability in the functionality of IPs – The enforcement of the IBBI proposals along with sorting out the associated hiccups will ultimately uplift the professional ethics and standards of IPs fraternity.
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