Regulator for insolvency law on cards

NEW DELHI: A regulator may well be on the cards to institutionalise the practice of insolvency law. The aim is to eventually develop a full-fledged private sector insolvency profession as it exists in developed countries.

It would be an umbrella organisation with representation from bodies like the Institute of Chartered Accountants of India (ICAI), the Institute of Company Secretaries of India (ICSI), the Institute of Cost and Works Accountants of India (ICWA) and the Bar Council of India (BCI) to regulate, license and nurture insolvency law practice which require expertise in many fields.

There are similar organisations in developed countries such as the Insolvency Practitioners’ Association in the UK and the American Bankruptcy Institute.

As of now, the restructuring schemes of sick companies are made by ‘operating agencies’ appointed by the Board for Industrial and Financial Reconstruction (BIFR), which are either banks or financial institutions. Apart from not having the expertise in corporate restructuring, their independence is also questionable as the sick firms mostly owe them money.

This situation calls for the development of a strong private sector insolvency profession with expertise in many disciplines, sources said. It is learnt that the ICAI and the ICSI had earlier passed resolutions favouring this idea.

Issues like cross-boarder insolvency cases in a globalised era, tracking of hidden assets and liabilities of sick firms, analysing complex transactions and valuation of assets need a multi-disciplinary approach, guided by a specialised agency. The agency presiding over the restructure could appoint a specialised private firm to do this job as per the advice of a creditors’ committee.

A company affairs ministry official told ET that the government, which has not been able to implement all provisions in its insolvency law due to judicial intervention, has mandated the Irani panel to fine-tune the system in the new law. The matter is now listed in the Supreme Court.

As per the amendment, the tribunal can appoint an operating agency to design a rehabilitation package for sick firms.

The government’s concept paper for the proposed new company law has three chapters on insolvency-related issues. The Centre has asked the committee to study and recommend necessary changes on the paper.