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Understanding the Process to become an Insolvency Professional

CA Gyati Gupta , Last updated: 02 April 2024  
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The Indian Bankruptcy Code refers to the Insolvency and Bankruptcy Code, 2016 (IBC), which is a comprehensive legislation enacted by the Government of India to consolidate and amend the laws relating to insolvency resolution and bankruptcy in the country. The IBC provides a unified legal framework for the timely resolution of insolvency cases and promotes ease of doing business in India.

Key features of the Indian Bankruptcy Code (IBC) include

  1. Insolvency Resolution Process: The IBC establishes a time-bound and creditor-driven insolvency resolution process for corporate entities, partnerships, and individuals. It aims to maximize the value of the debtor's assets and balance the interests of all stakeholders involved.
  2. Insolvency Professionals: The IBC introduced the concept of Insolvency Professionals (IPs) who are licensed professionals responsible for managing the insolvency process. They play a crucial role in the resolution, liquidation, or restructuring of the debtor's affairs.
  3. Adjudicating Authority: The National Company Law Tribunal (NCLT) is the primary adjudicating authority for insolvency proceedings under the IBC. It has the power to admit or reject insolvency applications and oversee the resolution process.
  4. Insolvency Resolution Mechanisms: The IBC provides for two primary insolvency resolution mechanisms:
Understanding the Process to become an Insolvency Professional

a. Corporate Insolvency Resolution Process (CIRP): For corporate entities, the CIRP is initiated when a default occurs, and an application is made to the NCLT. A resolution professional is appointed to manage the affairs of the debtor during the process, with the aim of finding a viable resolution plan within a specified timeline.

b. Individual Bankruptcy: The IBC also includes provisions for the insolvency and bankruptcy resolution of individuals and partnerships, allowing for a fresh start or orderly repayment of debts.

  1. Insolvency and Bankruptcy Board of India (IBBI): The IBBI is the regulatory authority established under the IBC. It regulates insolvency professionals, insolvency professional agencies, and information utilities, ensuring their professional standards and conduct.
  2. Priority of Creditors: The IBC establishes a hierarchy of creditors' priority in the distribution of proceeds during the resolution or liquidation process. Secured creditors and certain operational creditors are given priority over unsecured creditors.
  3. Cross-Border Insolvency: The IBC provides a framework for dealing with cross-border insolvency cases. It allows for cooperation and coordination with foreign jurisdictions, including recognition of insolvency proceedings initiated in other countries.

The Indian Bankruptcy Code, i.e., the Insolvency and Bankruptcy Code, 2016 (IBC), has significantly improved the insolvency resolution framework in India. It aims to expedite the resolution process, protect the interests of stakeholders, and foster a more efficient and transparent insolvency ecosystem.

Detailed note on Insolvency Professionals as per IBC

Insolvency Professionals (IPs) play a crucial role in the insolvency resolution process under the Insolvency and Bankruptcy Code, 2016 (IBC) in India. Here's a detailed discussion on Insolvency Professionals in the form of 25 FAQs:

1. Who is an insolvency professional (IP)?

Ans. As per the Insolvency and Bankruptcy Code, 2016 (the Code), an insolvency professional (IP) means an eligible person:

  • enrolled with an insolvency professional agency (IPA) as its member and,
  • registered with Insolvency and Bankruptcy Board of India (IBBI/the Board) as an insolvency professional (IP).

2. What is the Eligibility Criteria for becoming an insolvency professional (IP)?

Ans. An individual is eligible to become an insolvency professional (IP) provided he/she:

  1. is a person resident in India,
  2. is not a minor,
  3. is solvent (i.e., he / she is not an undischarged insolvent or he / she has not applied to be adjudicated as an insolvent)
  4. is of sound mind,
  5. has the qualification and experience as specified by the Board,
  6. has not been convicted by any competent court, for an offence punishable with imprisonment for a term exceeding six months, or for an offence involving moral turpitude, and a period of five years has not elapsed from the date of expiry of the sentence.
  7. is a fit and proper person.
 

3. What is the process to become an IP?

Ans. Following are the (mandatory) stages to be followed to become an IP:

A. For Professionals (Chartered Accountant, Company Secretary, Cost Accountant or an Advocate) having 10 years of experience, or graduates having 10 years of experience in the field of law or Masters' Degree holders/Post-Graduate Diploma holders, in management, having 10 years of managerial experience or graduates having 15 years of managerial experience:

  • Stage 1: Pass the limited insolvency examination (LIE)
  • Stage-2: Enrol as a professional member with an insolvency professional agency (IPA), within a period of 12 months of clearing the LIE
  • Stage-3: Complete a pre-registration educational course (PREC) conducted by the IPA.
  • Stage-4: Apply to the Board for registration as an 'insolvency professional' (IP)

B. For Young Professionals, having less than 10 years of experience or no experience: Stage 1: Complete the Graduate Insolvency Programme (GIP)

  • Stage 2: Pass the limited insolvency examination
  • Stage-3: Enroll as a professional member with an insolvency professional agency (IPA), within a period of 12 months of clearing the Limited Insolvency Examination
  • Stage-4: Complete a pre-registration educational course by the IPA.
  • Stage-5: Apply to the Board for registration as an 'insolvency professional' (IP)

C. The National Insolvency Programme will be notified by the Board in due time.

Note: Only professional and managerial experience of an individual shall be considered for becoming an IP.

4. Can a non-individual viz. body corporate, partnership firm etc. become an IP?

Ans. No. Only individuals are eligible to become an IP subject to other terms and conditions, as may be applicable.

5. Is the limited insolvency examination and pre-registration educational course mandatory?

Ans. Yes, in terms of applicable regulations made under the Code, passing of the LIE and completion of PREC is mandatory for becoming an IP.

6. Where can I get more information (viz. syllabus, frequency of examination, etc.) about the LIE?

Ans. The syllabus, format, qualifying marks, and the frequency of the Limited Insolvency Examination are published on the website of the Board.

7. Can, an individual who is not a resident of India, render services as an IP?

Ans. No. An individual who is not a resident of India cannot render services as an IP. However, he/she may become a partner or director of an Insolvency Professional Entity (IPE) recognised by the Board.

8. Who is an Insolvency Professional Entity (IPE)?

Ans. The Board has institutionalized the concept of an Insolvency Professional Entity (IPE) whereby several IPs can come together and pool their resources and capabilities to form an IPE so as to handle insolvency proceedings involving very high stakes or where complex issues of law or practical difficulties are involved. In terms of applicable regulations, the sole objective of IPE would be to provide support services to IPs. An IPE can take the form of a company, a limited liability partnership or a registered partnership firm having minimum net worth of ₹1 crore. However, IPEs are neither enrolled as member of an IPA nor registered as IP with the Board. They cannot act as IPs under the Code but can provide support services to IPs.

9. What is an Insolvency Professional Agency (IPA)?

Ans. IPA is frontline regulator that enroll and regulate the members practising as an IP in accordance with the Code read with rules and regulations made thereunder. IPA is also responsible for capacity building of IPs to ensure that the IPs remain updated with the knowledge and market requirement.

10. Is enrolment with IPA mandatory?

Ans. Yes. An individual seeking registration as an IP with the Board, must be enrolled as 'professional member' of an IPA.

11. How one can enroll himself as a professional member with an IPA?

Ans. At present the following agencies are registered as an IPA with the Board and you may approach any one of the following IPAs for enrolment.

  • Indian Institute of Insolvency Professionals of ICAI [IIIP-ICAI] 
  • ICSI Institute of Insolvency Professionals [ICSI-IIP] 
  • Insolvency Professional Agency of Institute of Cost Accountants of India [IPA-ICAI] 

12. In case of being an Advocate by Profession and meeting the eligibility criteria for becoming an IP, which IPA should I approach for enrolment?

Ans. There is no restriction on an individual (professional/ non-professional) for selection of any particular IPA for enrolment. As such, you may approach any one of the above-mentioned IPAs for enrolment, after clearing LIE.

13. In case of being a Diploma Holder with more than 10 years of managerial experience and have recently cleared LIE, can I get registration as an IP?

Ans. Diploma Holder is not eligible for enrolment with IPA and registration as an IP with the Board unless it is two-year full time Post Graduate Diploma in Management, from a university established or recognised by law or an Institute approved by All India Council of Technical Education (AICTE).

14. In case an individual has nine years of experience, in management and six years of experience as Professional (Chartered Accountant, Company Secretary, Cost Accountant or an Advocate), whether he shall be considered as having required fifteen years of experience, in management, for becoming an IP.

Ans. Yes. There shall be included an experience of any period as professional (Chartered Accountant, Company Secretary, Cost Accountant or an Advocate), for computing such required fifteen years of experience, in management, for becoming an IP.

15. What is Pre-Registration Educational Course (PREC)?

Ans. The Pre-Registration Educational Course (PREC) is a 50-hour course that is designed to provide aspiring insolvency professionals with the knowledge and skills they need to succeed in the profession. The course is taught by experienced insolvency professionals who share their expertise and insights with students.

The PREC covers a wide range of topics, including:

  • The law of insolvency
  • The role of the insolvency professional
  • The insolvency process
  • Financial analysis
  • Advocacy
  • Code of conduct

Completion of the PREC is not a guarantee of registration as an insolvency professional with the Insolvency and Bankruptcy Board of India (IBBI). However, it is a mandatory requirement for registration. Applicants who have completed the PREC are still required to meet other eligibility criteria, such as having a bachelor's degree and a minimum of five years of work experience.

The PREC is a valuable resource for anyone who is interested in a career in insolvency. It provides students with the knowledge and skills they need to be successful in this challenging but rewarding profession.

Here are some additional details about the PREC:

  • It is conducted by the IBBI and is open to all Indian citizens.
  • The course is offered in both online and offline formats.
  • The fees for the course are Rs. 10,000 for the online format and Rs. 15,000 for the offline format.
  • The course is held once a year.

For more information about the PREC, please visit the IBBI website.

16. What is Graduate Insolvency Programme (GIP)?

Ans. The Graduate Insolvency Programme (GIP) is the first of its kind programme for those aspiring to take up the discipline of insolvency profession as a career or seeking to take up other roles in the value chain, in India and in foreign jurisdictions. A student who completes the GIP will be eligible for registration as an IP under the Code, without having to wait to acquire the 10-year experience as required by the Code at present.IBBI has granted approval to one more institute i.e., the National Law Institute University (NLIU), Bhopal to conduct the GIP.

17. Is there any upper age limit for seeking registration with the Board as an IP?

Ans. No, there is no such upper age limit for seeking registration. However, age restrictions are applicable for practicing as an IP.

18. How can one commence practice as an IP, after obtaining registration?

Ans. In order to practice as an IP (i.e., for accepting assignments under the Code), after obtaining registration, one must hold 'Authorisation for Assignment' (AFA) issued by IPA.

19. What is 'Authorisation for Assignment'?

Ans. As per regulations, IP can accept or undertake any assignment as interim resolution professional, resolution professional, liquidator, bankruptcy trustee, authorised representative or in any other role under the Code, only if he holds an AFA. Thus, an AFA means an authorisation to undertake an assignment, (under the Code) issued by an IPA to an IP, who is its professional member.

20. How can one obtain, 'Authorisation for Assignment'?

Ans. AFA is issued to the IP by IPA of which IP is a professional member.

IBBI has made available an online facility to enable an IP to make an application for issuance/ renewal of AFA to the respective IPA and enable the IPA to process such applications electronically.

 

If you are an IP, you can apply online to your IPA, for obtaining AFA by accessing your online IP account at IBBI Website with your log-in credentials.

21. Is there any validity period associated with 'Authorisation for Assignment'?

Ans. An AFA issued or renewed by the IPA is valid for a period of one year from the date of its issuance or renewal, as the case may be, or till the date on which the professional member attains the age of seventy years, whichever is earlier.

22. Is there any age-restrictions for obtaining an AFA?

Ans. Yes, AFA shall be issued only to an IP, who has not attained the age of seventy years. However, an IP who has attained the age of seventy years can still hold registration and contribute to the overall ecosystem under the Code, by becoming director/partner/employee of an IPE.

23. Can one obtain registration as an IP, while in employment?

Ans. Yes. However, you cannot commence practice as an IP unless you hold the AFA. You have to discontinue employment so as to obtain AFA and practice as an IP.

You may surrender your AFA, if you wish to take up employment again.

24. Is the Panel of IPs prepared by the Board different from the database of IPs available on IBBI website?

Ans. Yes. The Board prepares Panel of IPs for facilitating Adjudicating Authority (Hon'ble NCLTs/ Hon'ble DRTs) to engage an IP for the specific purposes of acting as an IRP in a CIRP under section 16(4), liquidator in a liquidation process under section 34(6), RP in an individual insolvency resolution process under section 97(4) or 98(3), or bankruptcy trustee (BT) under section 125(4), 146(3) or 147(3) of the Code.

The panel is thus prepared by the Board for facilitating expeditious appointments of IPs as IRP, Liquidator, RP and Bankruptcy Trustee, as the case may be under the said specific provisions of the Code. Panel is not intended for any other process under the Code.

25. Can one shift his/her professional membership from one insolvency professional agency to another insolvency professional agency?

Ans. Yes. An IP can shift professional membership from one insolvency professional agency to another, subject to prior permission of the Board, after receiving no objection from both the concerned insolvency professional agencies.

An attempt has been made to include all the possible queries and answer them through this write-up. In case of any further query or feedback, the author can be reached out at cagyatigupta@gmail.com


Published by

CA Gyati Gupta
(In Practice)
Category Corporate Law   Report

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