IBBI Announces Incentives to Maximize Value in Resolving Bankruptcy Cases

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NEW DELHI: The Board of Insolvency and Bankruptcy of India (IBBI) has instituted a performance-related incentive fee, not exceeding a total of Rs 5 crore.

This is done to reduce massive delays and for the timely submission of the resolution plan to the contracting authority.

The incentives are also aimed at maximizing value, at the rate of 1% of the amount by which the realizable value exceeds the liquidation value.

Fees under the Amendment Settlement may be paid from funds, available from the debtor company, contributed by the applicant or committee members and/or collected as interim funding and these shall be included in the cost of the insolvency resolution process.

An insolvency practitioner will receive a minimum fixed remuneration of between Rs 1 lakh and Rs 5 lakh per month.

In cases where the resolution plan is submitted to the adjudicating authority within the time limit from the start date of insolvency, performance-based incentive compensation may be paid to the resolution practitioner, upon approval of such resolution plan by the awarding authority upon commencement of payment to creditors by the resolution applicant.

According to the notification, the resolution professional is entitled to 1% of the amount by which the realizable value exceeds the liquidation value if the resolution of the bankruptcy takes place in less than 165 days.

If it takes between 165 days and 270 days, the performance-related fee would be 0.75% and if it takes between 270 days and 330 days, it will be 0.5%. If insolvency resolution is delayed beyond 330 days, there is no incentive.

Performance-based incentive compensation for maximizing value may be paid to the resolution professional at the rate of 1% of the amount by which the realization value exceeds the liquidation value, after approval of the resolution plan by the contracting authority at the start of payment to creditors by the rescission applicant.

To illustrate, a corporate debtor with a liquidation value of Rs 20 crore was resolved and the realizable value to creditors was Rs 100 crore. The resolution plan was submitted to the contracting authority on the 170th day from the start date of the insolvency. The committee decided to pay the performance-related incentive fee under clauses 3 and 4.

In this case, the fees payable to the resolution professional will be a performance incentive fee for early resolution: 0.75% of Rs.100 crore = Rs 75 lakh, and a performance incentive fee for maximizing of value: 1% of Rs 80 crore (Rs 100 crore-Rs 20 crore) = Rs 80 lakh.

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