Concurrent audit of the conduct of RPs is an option. IBBI should hold a consultation on this, along with the other issues it is already is in the process of addressing.
The Insolvency and Bankruptcy Board of India’s (IBBI) proposed Code of Conduct for the creditors’ committee is fine, and in sync with global practice. The creditors’ committee is in the driver’s seat while steering the insolvency resolution process, and the code of conduct will provide clarity on the scope of their responsibilities. The norms include disclosure of any conflict of interest, not acquiring (directly or indirectly) any assets of the corporate debtor and complying with the bankruptcy code timelines. The creditors, that is, the banks, are regulated by RBI, in any case. And public sector bankers are also under the purview of the Prevention of Corruption Act. Oversight is scant, though, for resolution professionals (RP) appointed to resolve the bad asset. The IBBI must put in place a mechanism to audit the work of RPs and enforce the RPs’ code of conduct.
IBBI Regulations 2016 provide a detailed Code of Conduct for RPs. These include maintaining confidentiality of the information relating to the insolvency process and making relevant disclosures. However, a code of conduct for any profession is meaningless without an enforcement mechanism. IBBI and insolvency professional agencies that enrol RPs regulate RPs. The bankruptcy code mandates RPs to preserve and protect the assets of the corporate debtor, operate the business as a going concern, appoint valuers and invite prospective resolution applicants. Nevertheless, in many instances, the adjudicating authority has frowned upon the RPs for non-compliance with the bankruptcy code. IBBI has also taken disciplinary action against errant RPs (based on inspections).
But unlike managers, RPs are not accountable to shareholders. The need is to hold them to account for any questionable conduct. Complaints are rife about the conduct of RPs. Concurrent audit of the conduct of RPs is an option. IBBI should hold a consultation on this, along with the other issues it is already is in the process of addressing. A few bad RPs should not discredit IBC as a whole.