IBBI Looks into Com­plaints About Firms Act­ing as In­sol­vency Pros

Board acts af­ter an in­de­pen­dent in­sol­vency res­o­lu­tion pro­fes­sional al­leged that cos were break­ing rules

The Economic Times - - Economy: Macro, Micro & More -

Dheeraj Ti­wari & Sachin Dave

New Delhi | Mumbai: The In­sol­vency and Bankruptcy Board of In­dia (IBBI) is look­ing into com­plaints of banks ap­point­ing pro­fes­sional ser­vices firms as In­sol­vency Res­o­lu­tion Pro­fes­sion­als (IRPs).

Ac­cord­ing to an of­fi­cial aware of the de­vel­op­ments, an in­de­pen­dent IRP has writ­ten a let­ter to IBBI al­leg­ing that the firms are break­ing the rules.

The law does not al­low pro­fes­sional en­ti­ties to be en­rolled as mem­ber of an In­sol­vency Pro­fes­sional Agency reg­is­tered as In­sol­vency Pro­fes­sional with the IBBI. They can­not act as IPs un­der the Code.

The com­plainant has al­leged that in­voices were raised by firms and not in­sol­vency pro­fes­sion­als, who in most cases are em­ploy­ees of the firms, said the above quoted of­fi­cial.

There are about 800 in­di­vid­u­als who are now IRPs. Most banks, how­ever, stay away from ap­point­ing in­di­vid­u­als with no firm to back them as IRPs.

“The let­ter also states that there could be con­flict of in­ter­est as some of the firms may have worked with th­ese com­pa­nies,” he added.

At present Ernst & Young, PwC, Deloitte, KPMG, Grant Thorn­ton (GT), BDO and Al­varez and Marsal (A&M) are ap­pointed or are in the process of be­ing ap­pointed in 12 in­sol­vency cases un­der process. ET reached out to all the seven firms and some of the prom­i­nent se­nior part­ners head­ing the turn­around prac­tice. IBBI chair­man MS Sa­hoo said the law is clear that only an in­di­vid­ual can be reg­is­tered as in­sol­vency pro­fes­sional. “There is a pro­vi­sion in the law on the issue of con­flict of in­ter­est as well, if some­body is vi­o­lat­ing the law and if it is brought to our no­tice we will take action,” said Sa­hoo, re­fus­ing to di­vulge any fur­ther de­tails.

A de­tailed ques­tion­naire sent to EY, PwC, GT and A&M did not elicit any re­sponse.

A se­nior ex­ec­u­tive with Deloitte In­dia said in sev­eral sit­u­a­tions the firm has walked away from work where their in­ter­nal risk ad­vi­sory teams opined that there could be a con­flict of in­ter­est.

“We take the con­flict of in­ter­est sit­u­a­tions very se­ri­ously and we ad­here to the rules com­pletely,” he added.

“In­voices are raised by in­di­vid­ual IPs in our case and not the firm. Go­ing ahead we have reg­is­tered a separate en­tity with IBBI and only this en­tity will raise the in­voices from the banks,” said a se­nior ex­ec­u­tive with BDO In­dia.

“There’s no case against the firm and we have no fur­ther com­ments,” said KPMG.

“There is no con­flict of in­ter­est for us. We have never worked or re­ceived work ei­ther from any of the com­pa­nies we are or could be work­ing go­ing ahead,” a se­nior of­fi­cial at Al­varez and Marsal said.

Ac­cord­ing to a part­ner with one of the big 4 firms head­ing the turn­around prac­tice no rule is be­ing bro­ken. “We have de­puted a full time part­ner who will now help a com­pany turn­around. There is no rule which says in­voice can­not be raised by the firm,” the part­ner said, adding full dis­clo­sure was made to the lenders that help from my firm would be sought for op­er­a­tional and fi­nan­cial turn­around.

An­other se­nior ex­ec­u­tive, how­ever, agreed that there could be con­flict for few firms.

“If any firm has in the past ever taken a sin­gle penny as fee from the same com­pany that is now try­ing turn around, there is con­flict of in­ter­est,” he said. An­other part­ner head­ing the turn­around prac­tice said, “You have to un­der­stand that the size of some of the firms is so huge that it’s pos­si­ble that some work some­where may have been done. The im­por­tant ques­tion is, whether banks know about this.”

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