As a part of 'professional ethics' prescribed by the IBBI, for registered Insolvency Professionals, charging a "Success Fee" in CIRP/Liquidation assignments (which denotes fee maximization policy in common parlance) is n

As a part of professional ethics, Code of Conduct for Insolvency Professionals in IBBI (IP) Regulations, 2016 states that an insolvency professional must provide services for remuneration which is charged in a transparent manner, is a reasonable reflection of the work necessarily and properly undertaken, and is not inconsistent with the applicable regulations. In one case of CIRP of Ariisto Developers Pvt Ltd , wherein NCLAT upheld the order of AA not approving the success fee of 3 cr. though approved by CoC, on the ground that this success fee was in the nature of a contingency and speculative, hence did not form part of the provisions of IBC and its regulations. IBBI vide IBBI (CIRP) Regulations, 2016 effective from September 13, 2022, has inserted a new clause i.e., 34B to provide guidance over the remuneration structure comprising of: i. Minimum Remuneration ii. Performance Linked Incentive iii. Period of Remuneration. This amendment provides a regulatory framework of professional fee payable to IPs comprising fixed and variable fee with a minimum and maximum basis. Regulation 34B of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 states that the fee of interim resolution professional or resolution professional, under regulation 33 and 34, shall be decided by the applicant or committee in accordance with this regulation. The fee of the interim resolution professional or the resolution professional, appointed on or after 1st October 2022, shall not be less than the fee specified in clause 1 for the period specified in clause 2 of Schedule-II of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations. Provided that the applicant or the committee may decide to fix higher amount of fee for the reasons to be recorded, taking into consideration market factors such as size and scale of business operations of corporate debtor, business sector in which corporate debtor operates, level of operating economic activity of corporate debtor and complexity related to process. After the expiry of period mentioned in clause 2 of Schedule-II, the fee of the interim resolution professional or resolution professional shall be as decided by the applicant or committee, as the case may be. For the resolution plan approved by the committee on or after 1st October 2022, the committee may decide, in its discretion, to pay performance-linked incentive fee, not exceeding five crore rupees, in accordance with clause 3 and clause 4 of Schedule-II or may extend any other performance-linked incentive structure as it deems necessary. The fee under this regulation may be paid from the funds, available with the corporate debtor, contributed by the applicant or members of the committee and/or raised by way of interim finance and shall be included in the insolvency resolution process cost. Regulation 4 of the Liquidation Regulations provides that the liquidator is entitled to the fee as decided by the Committee of Creditors (CoC) during the CIRP under Regulation 39D of the CIRP Regulations. In case no such fee has been fixed, then the Stakeholders' Consultation Committee (SCC) can fix the fee of the liquidator (this provision is applicable only from 16.09.2022). Further, in case, no fee is fixed in above-mentioned manners, the liquidator shall, for the period of compromise or arrangement, be entitled to a fee at the same rate as the resolution professional was entitled to during the CIRP, and for the balance period of the liquidation, a fee at a percentage specified in the table given in regulation 4(2)(b) of the Liquidation Regulations is applicable. With the above regulatory framework being developed for fee of Resolution Professional (RP), RP cannot accept fee higher than fixed by CoC unless it is revised by CoC itself.