IBBI announces incentives to maximise value in resolution of bankruptcy cases

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

This is being done to cut down on massive delays and for timely submission of resolution plan to the Adjudicating Authority.

The incentives are also for value maximisation, at the rate of one per cent of the amount by which the realisable value is higher than the liquidation value.

The fee under amendment 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 the same shall be included in the insolvency resolution process cost.

An insolvency professional shall be paid minimum fixed fee in the range of Rs 1 lakh to Rs 5 lakh per month.

In cases where resolution plan is submitted to the Adjudicating Authority within the time period given from the insolvency commencement date, performance-linked incentive fee may be paid to the resolution professional, after approval of such resolution plan by the Adjudicating Authority on commencement of payment to creditors by the resolution applicant.

As per the notification, the resolution professional is entitled to 1 per cent of the amount by which the realisable value is higher than the liquidation value if bankruptcy resolution takes place in less than 165 days.

If it takes between 165 days and 270 days, the performance-linked pay would be 0.75 per cent and if it takes between 270 days and 330 days, it will be 0.5 per cent. If insolvency resolution gets delayed beyond 330 days, there is no incentive.

The performance-linked incentive fee for value maximisation may be paid to the resolution professional at the rate of one per cent of the amount by which the realisable value is higher than the liquidation value, after approval of the resolution plan by Adjudicating Authority on commencement of payment to creditors by the resolution applicant.

For illustration, a corporate debtor having liquidation value of Rs 20 crore was resolved and the realisable value to creditors was Rs 100 crore. The resolution plan was submitted to the Adjudicating Authority on 170th day from the insolvency commencement date. The committee has decided to pay the performance-linked incentive fees under clause 3 and 4.

In this case, fee payable to the resolution professional shall be Performance-linked incentive fee for timely resolution: 0.75 per cent of Rs.100 crore Rs 75 lakh, and Performance-linked incentive fee for value maximisation: 1 per cent of Rs 80 crore (Rs 100 crore-Rs 20 crore) Rs 80 lakh.

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