Age Restrictions on Insolvency Professionals

The Board has introduced the concept of “Authorisation for Assignment” by inserting Clause  No.12A (2) in the Schedule of "Insolvency and Bankruptcy Board of India (Model Bye-Laws and Governing Board of Insolvency Professional Agencies) (Amendment) Regulations, 2019", which reads as under:-

• # 12A (2) A professional member shall be eligible to obtain an authorisation for assignment, if he-

(a) is registered with the Board as an insolvency professional;

(b) is a fit and proper person in terms of the Explanation to clause (g) of regulation 4 of the Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016;

(c) is not in employment;

(d) is not debarred by any direction or order of the Agency or the Board;

(e) has not attained the age of seventy years;

(f) has no disciplinary proceeding pending against him before the Agency or the Board;

(g) complies with requirements, as on the date of application, with respect to-

(i) payment of fee to the Agency and the Board;

(ii) filings and disclosures to the Agency and the Board;

(iii) continuous professional education; and

(iv) other requirements, as stipulated under the Code, regulations, circulars, directions or guidelines issued by the Agency and the Board, from time to time.

• (6) An authorisation for assignment issued or renewed by the Agency (Insolvency Professional Agency) shall be valid for a period of one year from the date of its issuance or renewal, as the case may be, or till the date on which the professional member attains the age of seventy years, whichever is earlier.

 

1. With the above amended Regulations, a new concept of “Authorisation for Assignment” has been introduced. Thus an Insolvency Professional must possess “Authorisation for Assignment” before taking up any assignment [ i.e. Interim resolution professional (IRP), resolution professional (RP), liquidator, bankruptcy trustee, authorised representative or in any other role under the Code) under the Code (IBC-2016)].

 

2. Besides existing criteria of eligibility for a person to work as “Insolvency Professional”, a new condition  of  upper age limit has been imposed. Genesis for this new condition,lies in  the discussion paper [ Discussion Paper 12th May, 2019 - Amendments to the Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016.]. Relevant para of the discussion paper  reads as under:-

•  # 13. In terms of section 196 of the Companies Act, 2013, an individual above the age of  70 years is not ordinarily eligible to be a Managing Director, Whole time Director or   Manager, given the demanding responsibilities of such positions. During the corporate  insolvency resolution process (CIRP), an IP (Insolvency Professional) replaces the Board of Directors and manages the affairs of the company as a going concern. The job of an IP is not less demanding than that of a Managing Director under the Companies Act, 2103. The age  limit applicable to a Managing Director may, therefore, apply to IPs.

 

3. Taking support of the Companies Act , the board has not only imposed the age limit for the assignments of IRP / RP in CIRP (Corporate Insolvency Resolution Process), but  extended the age restrictions for taking up the other assignments also , be it liquidator, bankruptcy trustee, authorised representative or in any other role under the Code,  which is grossly unjustified.

 

4. There was no need to put the age limit for taking up of  assignments  in the regulations, as an Insolvency Professional (IP) can not function as IRP / RP  in CIRP beyond the age of 70 years as per the provisions of The Companies Act

• # 196 (3) No company shall appoint or continue the employment of any person as managing director, whole-time director or manager who—

(a) is below the age of twenty-one years or has attained the age of seventy years:

Provided that appointment of a person who has attained the age of seventy years may be made by passing a special resolution in which case the explanatory statement  annexed to the notice for such motion shall indicate the justification for appointing such  person;

 

During the course of CIRP (Corporate Insolvency Resolution Process), Insolvency Professional  is appointed as IRP /RP to manage the company as a going concern & is vested with the powers of the Board of Directors, including that of Managing Director, of the concerned  company.

 

5. As per the provisions of the code [Section 17(2)(e) of Corporate Insolvency Resolution Process, under Chapter II of PART II of the code], it is the responsibility of  IRP / RP  to comply with all concerned laws . 

• # Section 17(2)(e) be responsible for complying with the requirements under any law for  the time being in force on behalf of the corporate debtor.

 

6. Now look  to another section of The Companies Act , with reference to the practice of  handling  multiple assignments of IRP / RP by some insolvency professionals in the industry.

• # 203 (3) A whole-time key managerial personnel shall not hold office in more than one company except in its subsidiary company at the same time:

Provided that nothing contained in this sub-section shall disentitle a key managerial  personnel from being a director of any company with the permission of the Board:

Provided further that whole-time key managerial personnel holding office in more than  one company at the same time on the date of commencement of this Act, shall, within a period of six months from such commencement, choose one company, in which he wishes to continue to hold the office of key managerial personnel:

(5) If any company makes any default in complying with the provisions of this section, such company shall be liable to a penalty of five lakh rupees and every director and key managerial personnel of the company who is in default shall be liable to a penalty of fifty thousand rupees and where the default is a continuing one, with a further penalty of one thousand rupees for each day after the first during which such default continues but not exceeding five lakh rupees.

 

7. Thus  an Insolvency Professional  handling multiple CIRP ( Corporate Insolvency Resolution Process) assignments or handling a CIRP beyond the age of 70 years, is open to action under the above provisions of  The Companies Act, which may be initiated by any of the  disgruntled director or shareholder of the company undergoing insolvency.

 

8. As per the amended, Insolvency and Bankruptcy Board of India (Insolvency Professionals) (Amendment) Regulations, 2019, an Insolvency Professional can take up CIRP assignment just few days before attaining the age of 70 years. Will it not be a violation of the Section 196 (3) of The Companies Act ? By permitting the IP’s to take up the CIRP assignment just few days before attaining the age of 70 years, will the  Board not become complicit in the contravention of the provisions of The Companies Act.

• “Authorisation for assignment.”

# 7A. An insolvency professional shall not accept or undertake an assignment after 31st December, 2019 unless he holds a valid authorisation for assignment on the date of such acceptance or commencement of such assignment, as the case may be:

Provided that provisions of this regulation shall not apply to an assignment which an insolvency professional is undertaking as on-

- (a) 31st December, 2019; or

- (b) the date of expiry of his authorisation for assignment.”.

 

9. The best way forward for the Board would have been to issue a circular drawing the attention of the IP’s (Insolvency Professionals) towards provisions of Section 196(3)  of The Companies Act.

 

10. Now let’s look, whether the Board is empowered to frame Regulations, imposing the age limit on IP’s. Following are the provisions of the Code for IP’s.

• # Section 3(19) “insolvency professional” means a person enrolled under section 206 with an insolvency professional agency as its member and registered with the Board as an insolvency professional under section 207; 

• # Section 207. Registration of insolvency professionals. -

(1) Every insolvency professional shall, after obtaining the membership of any insolvency professional agency, register themselves with the Board within such time, in such manner and on payment of such fee, as may be specified by regulations.

(2) The Board may specify the categories of professionals or persons possessing such qualifications and experience in the field of finance, law, management, insolvency or such other field, as it deems fit.

• # Section 240. Power to make regulations. –

(1) The Board may, by notification, make regulations consistent with this Code and the rules made thereunder, to carry out the provisions of this Code.

(2) In particular, and without prejudice to the generality of the foregoing power, such regulations may provide for all or any of the following matters, namely: —

- (zzh) the time within which, the manner in which, and the fee for registration of insolvency professional under sub-section (1) of section 207;

-  (zzi) the categories of professionals or persons, the qualifications and experience and the fields under sub-section (2) of section 207;

 

Thus for the purpose of registration, as per Section 207(2) read with Section 240 (2)(zzi), Board can only specify through Regulations:-

1. The categories of professionals,(i.e. CA, Cost Accountants, Company Secretaries. Advocates etc.)

2. The criteria of qualifications.

3. Experience in the field of finance, law, management, insolvency or such other field, as it deems fit.

 

11. None of the provisions of the Code (Insolvency & Bankruptcy Code - 2016) empowers the Board to impose any criteria other than  specified in the Section 207 (2). Thus the action of the Board in imposing the criteria of age restrictions for Insolvency Professionals,  is quite an outreach of the powers vested with the Board.

 

12. It will not be out of place to mention that Board under clause 2 of the present  amendments in  regulations, amended  Regulation no 5(8) of  Insolvency and Bankruptcy Board of India (Model Bye-Laws and Governing Board of Insolvency Professional Agencies) Regulations, 2016,  and increased the age of Independent Director of Insolvency Professional Agency from seventy years to seventy five years.

• # 2. In the Insolvency and Bankruptcy Board of India (Model Bye-Laws and Governing Board of Insolvency Professional Agencies) Regulations, 2016 (hereinafter referred to as the principal regulations), in regulation 5, in sub-regulation (8), for the words “seventy years”, the words “seventy-five years” shall be substituted.

 

13 There is no age restriction in any other professional field i.e. Advocates, Chartered Accountants, Cost Accountants, Company Secretaries , Doctors etc. The idea behind not imposing any age restrictions on professionals, is that the society may continue to get  the benefits of the talent & experience of the professionals.

 

Conclusion - The action of the Board (Insolvency and Bankruptcy Board of India), putting    age restriction on Insolvency Professionals for taking up any assignment under the Code (IBC-2016) is -

• Putting age restrictions on “Insolvency Professionals” is not desirable.

• Putting  age criteria under the regulations is not within the powers delegated to the Board for framing of regulations under sub-section 240(2)(zzi) read with Section 207 of the Code (IBC-2016).

 

Disclaimer: The sole purpose of this blog is to create awareness on the subject and must not be used as a guide for taking or recommending any action or decision. A reader must do his own research and seek professional advice if he intends to take any action or decision in the matters covered in this blog.