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IBBI prescribes fee structure for insolvency professionals

Posted On - 10 October, 2022 • By - KM Team

Under the Insolvency and Bankruptcy Code, 2016 (Code), the resolution professional or the interim resolution professional (collectively referred as RP) is vested with the responsibility of running the business of the corporate debtor as a going concern and conducting the corporate insolvency resolution process (CIRP). The RP must also ensure that CIRP is conducted in a time-bound manner and the value of the assets of the corporate debtor is maximised during the process.

The Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (Regulations) prescribe that the expenses incurred by the RP are determined by the person making the CIRP application (Applicant) or the committee of creditors (CoC) who are the decision-making body during CIRP. The only limited guidance available to the Applicant or CoC is from the circulars issued under the Code which state that the fee to the RP must be a ‘reasonable reflection’ of the work. The insolvency courts have repeatedly observed that there is a need to provide guidelines for fixing a fee structure for the RP. In light of the same, vide a circular dated 13 September 2022 (available here), the Insolvency and Bankruptcy Board of India (IBBI) has amended the Regulations to provide fair compensation to the RP for the discharge of duties. In this update, we have provided a summary of the amended Regulations.

Minimum fee

The amendment has prescribed a fee structure for determining the fee payable to the RP. A minimum fee per month has been fixed depending on the quantum of claims admitted by the RP, as shown in the table provided below:

The Applicant or the CoC may fix a higher fee for the RP based on factors such as size and scale of the business of the corporate debtor and complexity of CIRP. It should be noted that the minimum fixed fee shall be applicable till the occurrence of the earlier of the following events:

  • RP making an application to the insolvency court for withdrawal of the CIRP;
  • RP making an application to the insolvency court for approval of resolution plan;
  • RP making an application to the insolvency court for liquidation of the corporate debtor; or
  • An order of the insolvency court closing the CIRP.

Performance-linked incentive fee

The Regulations have been amended to provide a performance-linked incentive fee to the RP after approval of the Resolution plan by the insolvency courts on the following two factors:

(a) Timely resolution: the Regulations provide that a percentage of realisable value of the assets varying from 0.5% to 1% may be paid to the RP in case of timely resolution of the corporate debtor; and

(b) Value maximisation: the Regulations provide that an incentive fee of 1% of the difference between the realisable value and the liquidation value of the assets of the corporate debtor may be paid to the RP.

It should be noted that the maximum amount that may be given as performance incentive to the RP is INR 50 million. Further, the fee given will form part of the CIRP cost.

Our thoughts

To ensure that a RP carries out the duties with integrity and efficiency, fair and adequate compensation is necessary. Given the inordinate delays in the CIRP, the minimum and performance linked fee may incentivize the RP to act expeditiously in the interest of the corporate debtor and the CoC. To that extent, the creditors may also be willing to accept a haircut for timely resolution of CIRP. Another appreciable feature of the Regulations is that they do not prescribe a standardised fee formula and rather provide the CoC necessary discretion to determine the fees of the RP after considering the complexity of the resolution process.

However, it should be noted that the RP is not solely responsible for the revival of the companies or expeditious closure of the CIRP. The amendment may incentivize the RPs to take reasoned decisions during the CIRP as opposed to referring the same to the insolvency courts. However, the time for completion of the CIRP may only be reduced if decisions are taken expeditiously by the RPs and concerned CoC. Only matters of significant relevance which are not adequately covered by the law, may be referred to the insolvency courts by the RP. This may lessen the burden on the insolvency courts and expedite the resolution process of corporate debtors.

Authors: Souvik Ganguly, Altamash Qureshi, Akhil Ramesh and Shrishti Mishra


The information contained in this document is not legal advice or legal opinion. The contents
recorded in the said document are for informational purposes only and should not be used for
commercial purposes. Acuity Law LLP disclaims all liability to any person for any loss or
damage caused by errors or omissions, whether arising from negligence, accident, or any other
cause.se.

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