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Meaning of Insolvency Professional
Insolvency Professionals are enrolled with an Insolvency Agency, and they are involved in the dissolution process of insolvent individuals, companies, LLPs, or partnerships. These professionals are authorized to act on behalf of such insolvent entities.
During a bankruptcy situation, Insolvency Professionals play a vital role in liquidating the entity’s assets and overseeing other settlement processes. This process has gained momentum with the government implementing strict norms through the Insolvency and Bankruptcy Code.
Any agency registered with the IBBI under Section 201 of the Insolvency Code, 2016, is referred to as an insolvency professional agency.
The key function of these agencies is to regulate the activities of Insolvency Professionals and ensure their development in the industry. These professional members are required to comply with the terms and conditions specified in the bye-laws of the insolvency agency code. IBBI exercises control over the Insolvency Professional agency and its professionals with respect to the complaints made under Section 217 of the Insolvency Code.
Functions of an Insolvency Professional Agency
The following are the functions of an Insolvency Professional Agency, as specified in Section 204 of the Insolvency Code (effective from 15-11-2016):
- The primary function of an Insolvency Professional agency is to grant membership to Insolvency Professionals.
- These agencies establish the standards of professional conduct and ethics for the members enrolled under them.
- They protect the rights and privileges of the members and safeguard their interests.
- They also address member grievances and take steps to resolve them.
- The agency continuously monitors members’ performance and can suspend or cancel membership whenever and wherever required.
Eligibility Criteria for Insolvency Professional
An individual is eligible to become an Insolvency Professional provided that he/she:
- Is an Indian resident and has attained 18 years of age (majority).
- Is of sound mind and a fit person.
- Is solvent and has not been declared insolvent.
- Possesses the required qualifications and experience as specified by the IBBI.
- Has not been convicted by any competent court/law for an offense punishable with imprisonment for a term exceeding six months or for an offense involving moral turpitude, and a period of five years has not elapsed from the date of expiry of the sentence.
Insolvency Professional Qualifications and Experience
To become an Insolvency Professional, any applicant must first register with an Insolvency Professional agency. Listed below are the required qualifications and experience for an applicant to be registered as an Insolvency Professional:
- Clear the National Insolvency Examination (or)
- Clear the Limited Insolvency Examination, in which case the applicant should have 15 years of experience in management after receiving a Bachelor’s degree from a university established or recognized by law (or)
- Has passed the Limited Insolvency Examination and has 10 years of experience as one of the following:
- A chartered accountant and is a member of the Institute of Chartered Accountants of India (or)
- A company secretary and is a member of the Institute of Company Secretaries of India (or)
- A cost accountant and is a member of the Institute of Cost Accountants of India (or)
- An advocate enrolled with a Bar Council.
Once these requirements are fulfilled, the applicant can start practicing as an Insolvency Professional.
Functions of an Insolvency Professional
The primary function of an Insolvency Professional is to assess the financial position of the company, partnership, LLPs, individuals, etc., and ensure a smooth process of dissolution. In certain cases, these professionals look for opportunities to rescue businesses. Otherwise, the main functions of an Insolvency Professional are:
- Analyze the financial statements of the company and understand its position.
- Make arrangements to sell all the assets of the liquidating individual or company.
- Understand the receivables position of the company/individual and oversee the collection process.
- Conduct formal discussions with debtors/creditors and manage their settlement process.
- Verify and agree on creditors’ claims as per the available funds; this is one of the main duties of Insolvency Professionals.
- Participate in the fund distribution process after setting aside the necessary funds to pay the cost of liquidation.
- Deal with other competing interests, if any.
Insolvency Professionals are required to prepare and submit reports to the National Company Law Tribunal with respect to the following:
- Liquidation plan and process: This must be submitted within 75 days of commencing the process by the Insolvency Professional.
- Detailed reports on the asset memorandum.
- Interim reports on how the liquidation process is progressing from time to time.
- Details about the sale of all the assets.
- Discussions with debtors and creditors and the conclusions reached.
Final reports prior to the dissolution of the company, partnership, and others.