IBBI Urges Insolvency Professionals to Guard Against Misuse of IBC

The Insolvency and Bankruptcy Board of India (IBBI) has called upon Insolvency Professionals (IPs) to exercise due diligence and remain vigilant against potential misuse of the Insolvency and Bankruptcy Code (IBC) framework.

The regulator’s September 9 circular highlights instances where insolvency proceedings may be used to mitigate tax liabilities, close or merge companies without regulatory scrutiny, or evade investigations, prosecution and penalties under various laws. IBBI has placed the responsibility on IPs to examine potential misuse of the insolvency process and bring such instances to the attention of the adjudicating authorities.

The move follows a July 3 decision by the regulator to disqualify an insolvency professional for allegedly orchestrating systemic misuse of the insolvency process across 10 interconnected corporate entities.

Former IBBI Chairman M S Sahoo noted that corporate insolvency is a costly and disruptive process that involves a transition from the existing board of directors to an insolvency professional and eventually a resolution applicant. He cautioned that misuse of the process can adversely affect stakeholders and impose costs on society at large.