How Remunerative Is It To Become An Insolvency Professional?

Insolvency professionals (IPs) play a critical part in the resolution of distressed corporate debtors, with the role demanding multi-disciplinary skills such as legal, managerial, and finance to perform their duties impeccably, India’s bankruptcy regulator recently said.

However, does the responsibility of ensuring the successful resolution of the corporate debtor and maximizing the value of its assets also offers a remunerative pay to IPs?

Becoming an IP – interim resolution professional (IRP), resolution professional (RP), liquidator, or bankruptcy trustee – can certainly be remunerative, but it depends on the specific case and the amount of work involved.

IPs are appointed by the National Company Law Tribunal, which recently prescribed the dress code for them and the legal practitioners, to manage the resolution process for companies undergoing insolvency proceedings under the Insolvency and Bankruptcy Code (IBC).

IPs remuneration is typically determined by the corporate debtors’ committee of creditors and is based on a percentage of the value of assets of the company, which is undergoing a corporate insolvency resolution process (CIRP).

The remuneration can vary depending on the case's complexity, the company's size, and other factors but generally, the larger and complex cases offer higher remuneration to IPs.

Being an IP is a specialized job and requires specific knowledge, skills and experience and thus, their remuneration should be evaluated in the context of the experience, reputation and complexity of the case.

To settle the issues around the fees paid to an IP, the Insolvency & Bankruptcy Board of India (IBBI) in September 2022 amended regulations following a discussion paper and set some parameters to related to the remuneration paid to IPs.

The salient features of the amendments are:

• The fee of an IRP or RP, appointed on or after 1 October 2022 should be decided by the resolution applicant or the committee of creditors in accordance with the amendment in regulations.

• An IP will be paid a minimum fixed fee of between one lakh and five lakh rupees ($1,824 and $6,081), per month, depending on the quantum of claims admitted.

• The resolution applicant or the committee may also decide to fix higher amount of fees than the minimum fixed fee, after taking into consideration market factors such as size and scale of business operations of corporate debtor, its business sector, level of operating economic activity of corporate debtor and complexity related to process.

• For the resolution plan approved by the committee on or after 1 October 2022, the committee may decide to pay, after approval of such resolution plan by the adjudicating authority on commencement of payment to creditors by the resolution applicant, performance-linked incentive fee, not exceeding a total of five crores rupees for:

  • Timely submission of resolution plan to the adjudicating authority, and/or

  • Value maximization, at the rate of 1% of the amount by which the realizable value is higher than the liquidation value, or

  • Other than above two points, as the committee may deem necessary.

The insolvency regulator said the fee may be paid from the funds, available with the corporate debtor, contributed by the resolution applicant or members of the committee and/or raised via interim finance and the same will be included in the insolvency resolution process cost.

The IBBI, which prepares a panel of IPs, noted that the regulators prohibit an IP from accepting /sharing any fees or charges from any professional and/or support service provider who are appointed under the processes.

It is important to note that being an IP is not just about the remuneration. The role demands a lot of responsibilities to ensure the corporate debtor’s liabilities are settled to the extent possible by maximizing the value of its assets.

To achieve this, IPs must ensure compliance with the laws and regulations as well as act in good faith and integrity. They must also have mental strength to be able to handle the pressure and complexity of the cases in order to achieve the desired objective.

Failure to discharge the duties efficiently may draw the ire of the bankruptcy regulator and land an IP in trouble, as it happened with Coimbatore-based Rajagurusami Maheswaran in the CIRP of Sandhhya Shipping Services Private Ltd. for ignoring spam e-mail.

The IBC has helped creditors recover a total of 2.43 lakh crore rupees as of September 2022 through the CIRP since the inception of the bankruptcy law in December 2016. However, the participation of women as an IP in India’s insolvency resolution landscape remains abysmally low even after five years of the law.

The government, which plans to make changes to the IBC to strengthen the CIRP and liquidation frameworks, in its latest Economic Survey said the code has brought the behavioral change among the corporate debtors as they now look to settle their dues.

The “fear of losing control” over the corporate debtor upon initiation of the CIRP has nudged thousands of debtors to settle their dues even before the initiation of insolvency proceedings, according to the Economic Survey for 2022-2023.

(Note: $1 = 82.2186 Indian rupees)

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