Insolvency and bankruptcy laws were consolidated in 2016 through the Insolvency and Bankruptcy Code, 2016. Insolvency Professional Agencies was established under this act and plays a crucial role in regulating and overseeing the conduct of insolvency professionals. This ensures that professionals handling financially distressed companies maintain high ethical standards, possess the necessary expertise, and act impartially to protect the interests of stakeholders. Let’s understand what the role of Insolvency Professional Agencies and the laws that govern it.
What Are Insolvency Professional Agencies (IPAs)?
Section 3(20) of the Insolvency and Bankruptcy Code, 2016 (IBC) defines “insolvency professional agency” as any person registered with the Insolvency and Bankruptcy Board of India. IPAs have the main function of enrolling and regulating insolvency professionals (IPs) enroll and regulate insolvency professionals (IPs). The Insolvency and Bankruptcy Board of India (Insolvency Professional) Regulations, 2016 (hereon forward known as “the Regulations, 2016) states that an IPA is a section 8 company.
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Legal Basis:
Section 201 of the IBC describes the process of registering an IPA. Section 204 lists the functions of IPAs. Therefore, the IBC explains its purpose, governance, function, etc.
Purpose:
IPAs are responsible for registering, regulating, and monitoring the conduct of IPs. They ensure that IPs meet competency, transparency, and ethical standards.
Key Roles and Responsibilities of IPAs
The roles and responsibilities of IPAs are listed under section 204 of the IBC:
Enrolling Insolvency Professionals (IPs):
The main function of IPAs is to enroll eligible professionals after verifying their qualifications and credentials and maintaining a database of registered IPs.Â
Regulating Conduct and Discipline:
IPAs lay down the standards of professional conduct for its members and monitor the performance of its members. As per section 204(e), they can suspend or cancel the membership of insolvency professionals who are its members on the grounds set out in its bylaws.
Providing Education and Training:
They are also responsible for organising training programs, workshops, and continuing education sessions for IPs. This is crucial as IPs are expected to stay updated with amendments and best practices in insolvency law.
Drafting and Enforcing Codes of Conduct:
IPAs should explain the codes of conduct for IPs to ensure ethical and professional behavior, monitor compliance, and enforce accountability.
Developing and Promoting Best Practices:
As per other IBC provisions, IPAs need to facilitate research and development in the field of insolvency and promote best practices for the efficient resolution of distressed assets.
Grievance Redressal Mechanism:
Section 204(f), IPAs handle grievances and complaints filed by stakeholders against IPs and it ensures fair and transparent grievance resolution processes.
Regulatory Framework for IPAs
The IBBI regulatory IPAs in India through several regulations, including:
Governing Laws:
The IBC states the functions of IPAs, such as enrolling and regulating IPs, developing professional standards, establishing grievance redressal forums, etc. The IBBI also regulates the IPA through the Insolvency and Bankruptcy Board of India (Model Bye-Laws and Governing Board of Insolvency Professional Agencies) Regulations, 2016, which explains the role of IPAs and their responsibilities in more detail.
Overseen by IBBI:
The IBBI registers and regulates IPAs. IPAs must comply with the IBBI rules, regulations, and reporting requirements.
Key Regulations for IPAs:
Under the Insolvency and Bankruptcy Board of India (Model Bye-Laws and Governing Board of Insolvency Professional Agencies) Regulations, 2016, the IBBI regulates IPs and processes, promotes entrepreneurship, and set minimum standards for the professional competence and conduct of IPAs members.
Read more : Insolvency vs Bankruptcy: Key Differences Explained
Benefits of Insolvency Professional Agencies
Ensuring Professionalism in Insolvency Practice: I
PAs ensure professionalism in insolvency practice by enforcing codes of conduct, such as principles of integrity, objectivity, competence, confidentiality, and compliance with relevant laws. This is done by regularly monitoring their performance and taking disciplinary actions against them.
Protecting Stakeholder Interests:
By acting as intermediaries during insolvency proceedings, IPAs ensure a fair and transparent process where all shareholders have an equal opportunity to participate.Â
Strengthening the Insolvency Ecosystem:
They improve trust and confidence in the insolvency resolution framework by setting high standards of conduct for IPs. This ensures their competency and ethical behaviour, promoting efficient and transparent proceedings.
Challenges Faced by IPAs
IPAs roles and responsibilities have been listed in the IBC and the Insolvency and Bankruptcy Board of India (Model Bye-Laws and Governing Board of Insolvency Professional Agencies) Regulations, 2016. They do face challenges, such as:
Balancing Oversight and Independence:
IPAs have the main role in regulating IPs. However, it becomes difficult to regulate IPs without hindering their operational autonomy.
Managing Grievances:
Section 204(f) of the IBC states that IPAs have the function to redress the grievances of consumers against insolvency professionals who are its members. There are difficulties in addressing complaints impartially while maintaining stakeholder confidence.
Evolving Legal Landscape:
The insolvency landscape is constantly evolving. Therefore it is a necessity to keep up with amendments and judicial interpretations of the IBC.
Conclusion
Insolvency Professional Agencies play a pivotal role in maintaining the integrity, professionalism, and efficiency of the insolvency resolution process. IPAs ensure IPs act in a fair, ethical, and transparent manner.
FAQs
How many IPAs are there in India?
There are three IPAs registered with the IBBI: the Indian Institute of Insolvency Professionals of ICAI, the ICSI Institute of Insolvency Professionals, and the Insolvency Professional Agency of the Institute of Cost Accountants of India.
Can IPAs take disciplinary action against IPs?
Yes, IPAs can take disciplinary action against IPs.
What is the role of IBBI in regulating IPAs?
The IBBI oversees the operations of IPAs, setting standards for their conduct, and ensuring that they comply with IBBI regulations.