Insolvency professionals on the hunt for indemnity cover

MUMBAI: Insolvency professionals are looking for insurance cover as they attempt to enrol for liquidation and bankruptcy courts, said three people in the know of the development. The demand for such covers is on the rise after the approval of Bankruptcy Code.

Globally under this cover, the product insures insolvency practitioners against claims for professional negligence. The level of cover is based on their annual fee income.

“Insurance companies will devise a policy to cover insolvency professional, like in the western countries,” said an insolvency professional with an asset reconstruction company. “There have been talks to design a product, when the law came into being.”

Under the Bankruptcy Code, insolvency professionals will be the licensed quasi-administrators. They will have to finalise resolution plan while carrying out on ground supervision of resolution process. In case liquidation or bankruptcy is triggered in their role as insolvency professionals will have to carry out the liquidation or bankruptcy of the debtor.

Today, products cover senior executives mostly directors and compliance officers under a professional indemnity cover. This policy provides cover in case of errors or omissions committed by the company executives for providing poor or negligent service or advice.

In the recent time, there have been rise of bankruptcy cases. A series of recent cases in the Indian banking system such as three bankers sent to jail, another company executive was detained for not following the due process in taking loans. These instances have highlighted the risks that bankers face today.

Since, these insolvency professional will be taking up a role of running a defunct company facing several allegations from creditors. The cover will provide a comfort against any allegation of wrongdoing if questions are raised about their decision in time to come.