Boutique insolvency resolution professional (IRP) advisory firms as well as chartered accountancy and company secretary firms that had ramped up operations over the past two years anticipating an increase in business are a worried lot after the filing of fresh cases under the Insolvency & Bankruptcy Code was suspended.
Several IRPs and lawyers are of the view that boutique firms largely dependent on operational creditors and small businesses will face a double whammy – along with the suspension of fresh cases for a year, the threshold for defaults has been increased to 1 crore from 1 lakh earlier.
“Clarity will come after the notification comes since the devil always lies in the details,” said Santanu T Ray, a senior partner at AAA Insolvency Professionals LLP. “If the ordinance puts a blanket ban on all cases, then it will be counterproductive. If the company is already defaulting for the last couple of years, even before the pandemic hit, then it’s good if lenders can take them to the resolution process.” Currently, about 115 insolvency professional entities are registered with the Insolvency & Bankruptcy Board of India (IBBI) and 3,009 insolvency professionals are registered with the board.
According to Ashish Pyasi, an associate partner at law firm Dhir & Dhir Associates, the proposed suspension will affect the practice of resolution professionals, who are generally chartered accountants or company secretaries.
“Due to strict timelines in the IBC, these professionals could not focus on other areas and had to remain focussed completely on IBC,” said Pyasi, who appeared in the insolvency resolution cases of Amtek Auto, Hotel Leela and Essar Projects, among others.
“The worst would be for those who have become insolvency professionals recently as they may not get work for next one year as no new assignments will come and existing ones will go to those who are already in the trade.”
As per the March 2020 quarterly report of IBBI, since the inception of the law, corporate insolvency resolution process has been initiated against 3,774 companies.
“Pendency of the cases is huge in the National Company Law Tribunals and if the tribunal further admits those cases where orders are pending, even then there will be work for existing RPs,” said Ray.
“The suspension, in fact, provides a unique opportunity to the NCLT infrastructure to clear a backlog of thousands of pending applications… and also more swiftly address any potential disputes,” said Haigreve Khaitan, partner at Khaitan & Co.
Small to mid-sized firms might be compelled to downsize their operations. This space, too, will witness stiff competition and tough bargaining to get new clients or retain the existing ones, industry sources said.
Sonam Chandwani, managing partner of law firm KS Legal, said it was extremely time-consuming to understand the nitty-gritty of the IBC process.
“After it’s suspension, we shall be focusing on wrapping up existing insolvency matters,” said Chandwani. “We already have a strong foothold in areas like corporate litigation and mergers and acquisitions. So, we, as a firm, will transition our focus to these areas.”
Source: Economic Times