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With the Reserve Bank of India (RBI) asking banks to take defaulters through the insolvency process, the role of insolvency professionals has assumed importance and people are rushing to clear the qualifying examination.
Sources said bankers last week met to decide on the appointment such professionals, considering the number of cases that would pile up and the acute shortage of insolvency professionals in the country.
However, the gap was expected to close fast as many had queued up to qualify as insolvency professionals, said Khushroo Panthaky, director at Grant Thornton Advisory.
Earlier, the hierarchy of preference for claims in liquidation proceedings was government, banks and then operational creditors. Under the bankruptcy law, banks’ claims come first and the government’s the last. This would speed up bankruptcy proceedings, experts said.
There is also big money involved. According to bankers, the monthly remuneration for an insolvency professional can be as high as Rs 2 crore, depending on the complication and size of the case.
“An insolvency professional is really the CEO of the company. But that does not mean creditors who have substantial interest in the proceedings cannot raise objections. At the end of the day, for an effective resolution plan to come together, the professional has to take on board bankers, operational creditors and other stakeholders," Panthaky said.
The rules say a firm cannot become an insolvency professional entity unless more than half its partners have cleared the examination. So the arrangement is to hire only the person as a professional, who could have a back-to-back arrangements with his firm to engage other professionals to assist him.
But earning the fat cheque is not the only motivation to clear the examination. Several bankers are taking the examination to effectively deal with proceedings and to understand the workings of insolvency professionals. The Insolvency and Bankruptcy Board of India (IBBI) regulates the functioning of these professionals on a case-to-case basis.
The Institute of Chartered Accountants of India (ICAI) and the Institute of Company Secretaries (ICSI) have formulated sample papers for their members who wish to enroll as insolvency professionals. These sample papers are based on the format followed by the IBBI. This examination has been set on the lines of competitive examinations like the IIT-JEE. The ICAI has also made a module of about six hours to help its members clear the examination.
The examination quizzes aspirants on the Companies Act, Evidence Act, and the Insolvency and Bankruptcy Code among others.
The first examination will be completed in June, after which there will be a new examination with some modifications. This is also one of the reasons for the rush.
"I tried to book one centre in Mumbai for June 30, but of the seven centres, none was free," said a chartered accountant.
Law firms, too, are training their professionals. Pavan Vijay, who runs Corporate Professionals, said everyone in his law firm had trained in the field as insolvency procedures required people from various fields. “One person alone cannot take up insolvency proceedings. It requires a team with varied professionals," he added.
The IBBI has registered nearly 500 insolvency professionals. Around 1,000 insolvency professionals had enrolled for a period of six months after which they had to appear for an examination for full-time registration.
A Delhi-based aspiring insolvency professional said studying for the examination was like going back to college. “I had to go back to the basics and gradually studied complex concepts," he added.