Insolvency and Bankruptcy Board of India (IBBI) has tightened the disciplinary framework for insolvency professionals, instituting hefty penalties for violations as they steer distressed businesses through the resolution process.
Erring professionals will be fined up to 25% of the fee charged by them, an order from the Insolvency and Bankruptcy Board of India mentioned.
The penalties start from a minimum of ₹50,000 or ₹1 lakh, depending on the breach, and go up to ₹2 lakh or 25% of the fee charged by the professional, whichever is higher.
IBBI is setting the benchmark for penalties so that individual insolvency professional agencies or self-regulators impose penalties in a uniform manner. These agencies enroll, educate, monitor and regulate insolvency professionals. Chartered accountants, cost accountants, company secretaries and lawyers are usually enrolled as insolvency professionals.
Experts suggested the IBBI move seeks to ensure insolvency professionals remain compliant with the letter and spirit of the Insolvency and Bankruptcy Code and conduct themselves ethically.
As per the IBBI order, the penalty is up to ₹1 lakh or 25% of the fee charged by the professional, whichever is higher in cases of failure in making proper disclosures to the insolvency professional agency. The minimum penalty, in this case, is ₹50,000. In cases where the professional accepts assignments that involve a conflict of interest with other stakeholders, the penalty is up to ₹2 lakh or a quarter of the fee charged, whichever is higher. In this case, the minimum penalty is ₹1 lakh. Earlier this month, the regulator prohibited professionals hired as administrators of distressed companies from continuing in that role if any of their colleagues from the same consultancy represent any other party in the same case.