IBBI Discussion Paper on Deletion of Clause 6 from the Code of Conduct for Insolvency Professionals

The Insolvency and Bankruptcy Board of India (IBBI) has released a discussion paper proposing the deletion of Clause 6 from the Code of Conduct for Insolvency Professionals (Code of Conduct). Clause 6 restricts Insolvency Professionals (IPs) and their relatives from acquiring assets of a debtor during liquidation or bankruptcy proceedings. Given that the detailed prohibitions on asset acquisition are already covered under the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 and the Insolvency and Bankruptcy Board of India (Bankruptcy Process for Personal Guarantors to Corporate Debtors) Regulations, 2019, Clause 6 is seen as redundant. The deletion aims to streamline the regulatory framework while maintaining protections against conflicts of interest.

• Statement of Problem: The detailed prohibitions on asset acquisition are already covered under the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 and the Insolvency and Bankruptcy Board of India (Bankruptcy Process for Personal Guarantors to Corporate Debtors) Regulations, 2019, Clause 6 is seen as a duplication, when specific stipulations already exist,

• Key Proposals:
• • • Deletion of Clause 6 from the Code of Conduct to remove duplication with specific existing regulations.

• • • Continued enforcement of prohibitions on asset acquisition by IPs through existing regulations.

• • • IPs remain bound by ethical principles of independence and impartiality even after deletion of Clause 6.

• • • Introduction of BAANKNET (formerly eBKray), a centralized digital platform developed in collaboration with the Indian Banks Association for listing and auctioning assets under liquidation. This platform aims to enhance transparency and efficiency in asset sales during liquidation

• Objective: Simplify and harmonize the regulatory framework for insolvency professionals by removing redundant duplications, while ensuring accountability and avoidance of conflicts during asset sales in insolvency and bankruptcy processes.

The IBBI’s proposal to delete Clause 6 appears to be a sensible regulatory streamlining measure that would reduce duplication without creating any legal vacuum in protecting against conflicts of interest. The detailed provisions already present in specific regulations, combined with the introduction of digital platforms like BAANKNET, suggest a thoughtful approach to maintaining ethical standards while improving efficiency in the insolvency resolution process.