Insolvency Board to pull up firms acting as resolution professionals to banks

Industry:    August, 2017

The Insolvency and Bankruptcy Board of India (IBBI) is looking into a complaint that some professional service firms were acting as insolvency resolution professionals (IRPs) to help banks manage and restructure insolvent companies.

Under the law, professional entities can’t enrol themselves as an insolvency professional or become a member of another agency registered with the IBBI to do the job. According to an official aware of the matter, an independent IRP had written to the board accusing some firms of breaking this rule.

The complainant alleged that invoices were raised by these firms and not the insolvency professionals, who in most cases were employees of the firms, the official said.

There are about 800 individuals who are registered as IRPs. While professional service firms are barred from becoming an IRP, their executives can do so in their individual capacity. Most banks stay away from appointing people with no firm to back them as IRPs.

“The letter also states that there could be conflict of interest as some of the firms may have worked with these companies (in the past),” the official added. IBBI chairman MS Sahoo said the law is clear that only an individual can be the insolvency professional.

“There is a provision in the law on the issue of conflict of interest as well. If somebody is violating the law and if it is brought to our notice, we will take action,” said Sahoo, refusing to divulge further details.

People from EY, PwC, Deloitte, KPMG, Grant Thornton (GT), BDO and Alvarez & Marsal (A&M) are appointed or are in the process of being appointed in 12 insolvency cases currently under process. ET reached out to all the seven firms and some of the senior partners heading the turnaround practice.

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EY, PwC, GT and A&M did not respond to ET’s queries until press time Wednesday. A senior executive at Deloitte India said in several situations the firm had walked away from work where its internal risk advisory teams pointed out the possibility of conflict of interest.

“We take the conflict of interest situations very seriously and we adhere to the rules completely,” he added. A senior executive at BDO India said in its case, invoices were raised by individual IPs and not the firm. “Going ahead we have registered a separate entity with IBBI and only this entity will raise the invoices from the banks,” this executive said.

“There’s no case against the firm and we have no further comments,” said KPMG. According to a partner with one of the big four firms heading the turnaround practice, no rule is being broken.

“We have deputed a full-time partner who will now help a company turnaround. There is no rule which says invoice cannot be raised by the firm,” the partner said, adding: “Full disclosure was made to the lenders that help from my firm would be sought for operational and financial turnaround.” Another senior executive, however, agreed that there could be a conflict of interest for a few firms.

“If any firm has in the past ever taken a single penny as fee from the same company that it is now trying turn around, there is conflict of interest,” he said.

Another partner heading the turnaround practice said, “You have to understand that the size of some of the firms is so huge that it’s possible that some work somewhere may have been done. The important question is, whether banks know about this.”
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