Officials to get incentives for quick biz rescue

The Insolvency and Bankruptcy Board of India (IBBI) has set the minimum compensation to be paid to professionals stitching together rescue plans for bankrupt companies and has proposed performance-linked incentives for quickly salvaging businesses.

The bankruptcy rule maker also stipulated that these professionals should not share the fee paid to any other professionals hired to prepare the rescue plan.

The move seeks to protect the financial independence of the resolution professionals who have to take sensitive decisions involving competing interests of stakeholders and incentivises quick bankruptcy resolution, which gives a boost to the economy. The performance-linked incentive to the insolvency resolution professional is based on how quickly a resolution plan is finalised and implemented and also on the value realised above the liquidation value.

IBBI’s Insolvency Resolution Process for Corporate Persons (Third Amendment) Regulations issued on Wednesday said that the fee for the resolution professional would be decided by the bankruptcy petitioner or the committee of creditors. The fee for such professionals appointed from 1 October should not be less than the level prescribed in a new schedule.

As per this, for an entity in the case of which claims admitted are ₹50 crore or less, the minimum monthly fee to the resolution professional should be ₹1 lakh. If the admitted claim is between ₹50 crore to ₹500 crore, the minimum fee should be ₹2 lakh a month. The regulator has specified five such slabs of fee payment. In the highest slab, where the total claims admitted is over ₹10,000 crore, the minimum fee payable to the resolution professional is ₹5 crore.

Resolution professionals can also be paid more than the monthly payments specified by IBBI if the bankruptcy applicant or the creditors’ committee decides so, but the reasons have to be recorded. Such additional payment may be given taking into consideration market factors such as size and scale of business operations of the corporate debtor, business sector in which the entity operates, level of operating economic activity of the corporate debtor and complexity related to process, IBBI said.

As per the incentive scheme allowed by IBBI, the resolution professional is entitled to 1% of the amount by which the realisable value is higher than the liquidation value if bankruptcy resolution takes place in less than 165 days. If it takes between 165 days and 270 days, the performance-linked pay would be 0.75% and if it takes between 270 days and 330 days, it will be 0.5%. If insolvency resolution gets delayed beyond that, there is no incentive.

The performance-linked incentive cannot exceed ₹5 crore.

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