Resolution experts' fees are being impacted by competition and new regulations

 Resolution experts' fees are being impacted by competition and new regulations

In NEW DELHI: The rivalry among experts and tightening of regulations, according to market players, has resulted in a 70% decrease in the average fees charged by resolution professionals (RPs) and other consultants engaged in insolvency and bankruptcy during the previous two years.

The consultants were asking as much as 1-2 crore for each case back in 2017 when the Reserve Bank of India (RBI) issued the 'dirty dozen' list of 12 big accounts against whom the recently established Insolvency and Bankruptcy Code (IBC) would be utilized. Six years later, industry players who want to remain anonymous indicated that the costs had decreased to as little as 10–15 lakh per case.

Due to increased competition and tighter regulations by regulators, the fee paid to insolvency practitioners has been drastically reduced. Lenders, who make up the majority of IBC's stakeholders, have also begun to pay greater attention to fees, according to experts.

There are now 4,273 insolvency professionals working in India, according to statistics from the Insolvency and Bankruptcy Board of India (IBBI).

"The expenses, particularly those involving consultants and resolution specialists, have been significantly simplified under IBC regulations. As a result of their fiduciary duty to other stakeholders, lenders have become increasingly aware of expenditures made from the corporate debtor's corpus, according to Siddharth Srivastava, partner at Khaitan & Co.

"IBBI had also been quite vigilant on such cost issues, and its endeavor is to encourage RPs to incur reasonable costs in operating the company as a going concern," the statement said.

According to industry participants, the top four consultancies and certain international businesses with expertise in corporate restructuring were the only players in the market during the early years of IBC. Lenders liked such household names up to 2020–21 since the IBC accounts contained significant quantities of money. But now that many medium- and small-sized accounts are now entering IBC, industry players claim that there is a need for inexpensive RPs.

"When the insolvency system first began to take shape, larger consultancies have the advantage of being early adopters. However, with so many individuals and organizations entering, the leverage has also significantly decreased, according to independent counsel Ashish Pyasi.

Additionally, IBBI published new guidelines for RP fee payments. In addition to introducing a system through which RPs would get specific incentives if they conclude the process within the allotted period, these guidelines also specified a minimum fee that must be paid.

Since the charge is now limited and there is a provision for incentives to the professionals if the resolution is achieved considerably sooner, the modification benefits both parties. Given the development of insolvency law and the fact that IBC has been operating for six years, there is undoubtedly a lot of competition.

According to a restructuring specialist, local and smaller businesses will soon rule the IBC resolution market. "Global consultants cannot afford to work for low pay. They would prefer to serve as counselors to future IBC bidders who would be ready to pay more, rather than resolution experts.