A major new insolvency regime commenced in India in May 2016. It introduces co-regulation of insolvency practitioners – IPs – through direct regulation by their professional bodies – IPAs – which themselves are regulated by a government agency, the Insolvency and Bankruptcy Board of India. This is the English model, and likely to be the New Zealand model of insolvency regulation. It contrasts with that of Australia, where ARITA and other professional bodies have limited roles in co-regulation, only somewhat added to by our new insolvency laws.
Apart from the substantive new corporate and personal insolvency law the Indian Insolvency and Bankruptcy Code 2016 introduces, the Code puts in place a number of new entities in support of the creation of an insolvency profession in India whose members will conduct the administration of insolvent companies and individuals under the new law.
These entities are:
(i) Insolvency and Bankruptcy Board of India, the Board,
(ii) insolvency professionals, IPs,
(iii) insolvency professional agencies, IPAs, and
(iv) information utilities, IUs.
There will also be a:
(a) National Company Law Tribunal, which is yet to be established, and
(b) Debt Recovery Tribunals (DRT) which presently exist.
Appeals would go to the Supreme Court of India.
Insolvency Professionals and Agencies Under the Code
The Code and its rules adopt a quasi-self-regulatory model for regulating IPs. IPs are required to be registered with any IPA. Any not-for-profit company is eligible to be an IPA. IPAs are in turn regulated by the Board. This is similar to the structure in the UK, and in contrast to that of Australia.
The primary function of the IPAs will be to register and regulate IPs, with assessment by way of experience and qualifications, assessed by examinations, and by enforcing what is to be a code of conduct.
There is therefore not a single insolvency regulator. The Code allows for multiple IPAs to operate simultaneously, again as in the UK.
Each IPA is required to be incorporated as a not-for-profit company and to have a specified minimum net worth and paid- up share capital, and its directors are to be ‘fit and proper’. At least a quarter of the directors of an IPA are required to be insolvency professionals themselves.
IPAs are required to adopt model by-laws setting out the duties of the IPA, eligibility for enrolment as a member, monitoring of members, adoption of a complaints process, the manner of conduct of disciplinary proceedings and rules concerning expulsion of members of an IPA.
The IP Regulations lay down eligibility requirements and ongoing registration requirements for IPs. The Regulations prescribe a code of conduct to which IPs must adhere, highlighting standards of impartiality and independence, integrity, professional competence, confidentiality, etc.
The Board describes an IPA as “a front line regulator for the insolvency professionals. It enrols professional members, lays down standards of professional conduct for them and monitors their performance. It also redresses the grievances of consumers against its members”.
Two new IPAs
The Board has already granted registration for two not-for-profit companies to act as IPAs, under the IBBI (Insolvency Professional Agencies) Regulations, 2016 – the Indian Institute of Insolvency Professionals of ICAI, and the ICSI Insolvency Professionals Agency.
Those two IPAs are now enrolling professional members under the Code.
This does appear similar to the English model but the concern there is that there are too many “IPAs”. Legislation allows the government to act to reduce or change their role if the existing system does not prove satisfactory.
New Zealand is assessing its current limited regulation over IPs. A report has gone to the NZ government which has recommended a co-regulatory model, which would leverage off the existing accreditation system jointly established by CAANZ and RITANZ; that is, a voluntary regulation and registration scheme for insolvency practitioners. Under the proposed NZ model, those accredited bodies would license the profession and monitor compliance with minimum code standards, with oversight provided by an independent government regulator.
That again is similar to that in England, and what is being established in India.
Australia, by contrast, has a system whereby the two regulators directly regulate different parts of the profession. The professional bodies, or IPAs, have only an incidental role, and are largely limited to ARITA. The Insolvency Law Reform Act 2016 will increase that role, but how or whether that will apply in practice waits to be assessed as the new law, commencing 1 March 2017, starts operation.