The development comes amid massive delays in insolvency resolution and concerns that lenders are unable to realise significant value.
The latest regulations issued by IBBI late Tuesday have provided for the payment of performance-linked incentive fee of up to 1% of the realisable value in case the resolution is submitted within 165 days of commencement of insolvency action. A fee of 0.75% is provided for filings between 166 and 270 days and 0.5% between 271 and 330 days. Beyond 330 days, the resolution professional (RP) will be ineligible for the benefit.
The steps taken by the Insolvency and Bankruptcy Board of India are welcome, but it is crucial that the government should quickly fill up vacancies in the National Company Law Tribunal and speed up the resolution process. On an average, it is taking 550 days to complete a corporate resolution process, while the law prescribes a maximum 270 days. The government must ensure that a key reform initiated by it five years ago is not derailed.
Currently, the law provides for the resolution process to be completed within 180 days, with a possible extension of another 90 days.
When it comes to an incentive fee for value maximisation, IBBI has suggested a 1% incentive on the amount by which the realisable value is higher than the liquidation value. For instance, if the liquidation value is Rs 20 crore and the amount realised is Rs 100 crore, the value maximisation fees will be Rs 80 lakh. Similarly, in case the resolution plan is filed within 165 days, the RP will be eligible for a maximum incentive of another Rs 80 lakh. Both the incentives can only be paid after the approval of the resolution process by the NCLT.
The incentive will be over and above the fees, which has been Rs 1 lakh a month in case claims are up to Rs 50 crore. It will go up to Rs 5 lakh in case of claims of over Rs 10,000 crore.