Insolvency Professionals- Meaning, Eligibility, Functions, Types, Acts

Insolvency Professionals- Meaning, Eligibility, Functions, Types, Acts

Insolvency professionals act as a lifesaver for any company that is about to be declared bankrupt.

Due to poor financial management by commercial entities and other circumstances, bankruptcy is rapidly increasing globally. 

As a result, the insolvency specialists take over the struggling business and its financial creditors as part of the resolution process.

There is a tremendous rise in demand for these insolvency professionals. To have a successful career as an insolvency professional, one needTs up-to-date knowledge of the laws and regulations.

Meaning OF Insolvency Professionals

Insolvency professional is a person who is enrolled with insolvency professional agency (IPA) or registered with Insolvency and Bankruptcy Board of India (IBBI.

Insolvency Professionals work for an Insolvency Agency and assist in the dissolution of insolvent individuals, firms, LLPs, or partnerships. 

They are authorised to act on behalf of such insolvent individuals and companies. 

An insolvency professional plays a crucial role in the liquidation of assets and other settlement processes during bankruptcy. 

What is an Insolvency Professional Agency?

An insolvency professional agency is any organisation that has registered with the IBBI under Section 201 of the 2016 Insolvency Code.

The crucial function of these agencies is to control the conduct of insolvency practitioners and to promote their development and advancement in the industry. 

These professional members must adhere to the rules and regulations outlined in the insolvency agency code's by laws. 

In relation to complaints made under section 217 of the Insolvency Code, IBBI exercises control over the Insolvency Professional Agency and its professionals.

Functions of an Insolvency Professional

According to section 204 of the Insolvency Code, which became effective on November 15, 2016, the following are the duties of the Insolvency Professional Agency: 

  • The fundamental duty of an insolvency professional agency is to admit insolvency specialists as members.
  • These agencies set the benchmark for professional behaviour and ethics for their registered members.
  • They monitor members' interests and defend their rights and privileges.
  • They also inquire about the member's complaints and take action to address them.
  • The agency continually assesses members' performance and has the authority to suspend or terminate membership if necessary.

Responsibilities of insolvency professionals

The primary responsibility of an insolvency professional is to assess the financial state of a business, corporation, or partnership. 

As soon as this step is completed, the process is made sure to continue smoothly. 

Once the business has been carefully analysed, they decide if it can be revived. 

Some of the other main responsibilities are: 

  • To better comprehend the organisation and look at its financial position.
  • Make plans when setting up official meetings with clients and lenders and working on the settlement.
  • Verifying and confirming the creditors' claims in light of the available cash is another important responsibility.
  • Make sure the assets are auctioned off properly when liquidating a person or an organisation.
  • Utilise the remaining funds for fund distribution after paying the liquidation costs.
  • To make a thorough report after research and submitting it to the National Company Law Tribunal with the following information: 
  • The insolvency professional starts the process after submitting to the agency within 75 days a comprehensive plan and procedure for the liquidation of assets.
  • While the procedure is still ongoing, create a complete report.
  • An extensive information on the sale of property/assets 
  • To remain in touch with borrowers and lenders and impart them with the information about the same
  • Write a report on the conclusion of the organisation's dissolution process.  

How to Choose the Right Insolvency Practitioner 

In order to choose right insolvency practitioner following points need to be considered 

1. The Practitioner Should Be Licensed

It is important that the insolvency practitioner has a licence because only licensed professionals are legally permitted to carry out many of the tasks necessary for insolvency procedures, 

Such as serving as a company's administrator, liquidator, or supervisor of a Company Voluntary Arrangement. 

2. The Practitioner Should Possess Experience 

Any possible insolvency practitioner one is  thinking about hiring should have an initial chat or meeting with them.

They should ask them how much experience and practise they have with dealing with similar circumstances or with similar actions. 

If one doesn't think the practitioners are  experienced enough to deal with the matter, one can reconsider their option. 

3. The Practitioner Should Be Trustable

Whatever course of action one chooses in regards to the business, it's going to be a stressful and challenging period. 

It's crucial to have faith in the insolvency practitioner one chooses because one may need to collaborate with them for a considerable amount of time. 

Fiduciary obligations that insolvency practitioners must uphold include acting competently and ethically, but one should feel comfortable working with them before you appoint them.

4. The Practitioner Fees

To get an idea of the charges associated with the course of action one is pursuing for the company, one should get in touch with a few insolvency professionals. 

Many will provide a free, initial consultation with no obligations. The charges and fees should be clear from this.

But keep in mind that sometimes choosing the cheapest option is not the best choice.

Qualification and Experience Needed to Become an Insolvency Professional

  • Any applicant must register with the Insolvency Professional agency as an initial step. For a candidate to be registered as an insolvency professional, the following credentials and experience are necessary 
  • Either the National Insolvency Examination or the Limited Insolvency Examination must be passed, with the latter requiring the applicant to have 15 years of management experience after getting a Bachelor's degree from a university established or recognised by law.
  • Or has completed the Limited Insolvency Examination or has 10 years of experience and as -
  • a member of the Institute of Chartered Accountants of India and a chartered accountant (or)
  • a member of the Institute of Company Secretaries of India and a company secretary (or)
  • a member of the Institute of Cost Accountants of India and a cost accountant (or)
  • An advocate registered with a Bar Council. 

Meaning of insolvency

insolvency is a financial state in which a company or individual is unable to pay the debts they owe.

Difference between insolvency and bankruptcy

Insolvency is a situation, While bankruptcy is a legal status. Organisations that are insolvent are incapable of paying their debts while During bankruptcy, the debts of an entity or person must be restructured with the government's assistance or sold to pay off the debts. 

Types of Insolvency

The two forms of insolvency are: 

1. Cash-flow insolvency

The meaning of cash flow insolvency is when a person or business is in cash-flow insolvency, it means that they have the assets necessary to pay their debts, but the right kind of money is not available to do so. 

A person might, for instance, have a big house and a costly car, but not enough liquid assets to pay a loan when it is due. 

Negotiation is typically the best way to resolve cash flow insolvency. For instance, the debtor may agree to pay a fine before the bill collector waits until the car is sold.

2. Balance-sheet insolvency

The meaning of balance sheet insolvency is when a person or business does not have enough assets to cover all of its liabilities, it is said to be in balance-sheet insolvency. 

The individual or business may declare bankruptcy, but not always. Negotiation is frequently successful in resolving conflicts without declaring bankruptcy once a loss has been accepted by all parties. 

Even if a business is insolvent on its balance sheet, it may still have the cash on hand to make its next payment on time. 

Most rules, nevertheless, won't permit the business to pay that amount unless doing so will directly benefit all of its creditors. 

For instance, a bankrupt farmer might be permitted to hire workers to assist with crop harvesting because failing to harvest and sell the grain would be far worse for his creditors.

Acts of insolvency

The purpose of India's personal insolvency laws is to deal with the situation of a person who is unable to pay their debts. 

The protection of the insolvent debtor, the distribution of property among creditors, and the release of the debtor from creditor demands are the three main goals of India's personal insolvency laws. 

An individual or creditor may submit an insolvency petition to start insolvency procedures with the help of INSOLVENCY PROFESSIONALS. 

A creditor may begin insolvency proceedings within three months of committing any of the following acts of insolvency.

  1. Transfer of all Property

If an individual transfers all or almost all of his or her property to a third party in India or elsewhere for the benefit of their creditors in general.

  1. Intention of Delaying Creditors

If someone transfers any of their property, whether entirely or in part, with the intention of defeating or delaying their creditors, whether in India or elsewhere.

  1. Engages in fraud

If someone transfers any property in India or somewhere else using a fraudulent preference. The person is then declared to be insolvent.

  1. Self-Departs or Is Absent

If a person leaves or stays outside of India with the intention of avoiding or delaying payment to creditors. Or, leaves his or her home or place of business or isolates themselves to deny creditors a way to get in touch with them.

  1. Property Sold Via Decree

If any of a person's property is sold in compliance with a court order mandating the payment of money.

  1. Filing for insolvency

If someone submitted a petition for insolvency, they would be declared insolvent.

  1. Notice to Creditors is Given

If a person notifies all of their creditors that they have stopped or will soon stop paying their debts.

  1. Imprisoned

If someone is put in jail to carry out a court order in exchange for payment of money.

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  1. What is the average salary of an insolvency professional ?

The average annual salary for an insolvency professional ranges from about 2.8 lakhs for a MIS ( Management information system) Executive to 4.4 lakhs for a legal associate. 

  1. How many insolvency professionals are there in India ? 

In India, there are 1,107 registered insolvency professionals.Delhi has the most insolvency professionals.

  1. What is the difference between bankruptcy, insolvency and liquidation?

Insolvency occurs before bankruptcy, which then causes liquidation. In common terminology, insolvency is a state in which a company's financial problems are such that it is unable to continue operations at the existing rate. This ultimately results in bankruptcy, where the Company is legally found to be unable to pay its debts. As a result, the company's operations are wound up in accordance with the governing statute, and hence the company enters liquidation. 

  1. How long does the insolvency process take place?

Assets must be sold, investigations must be done, and documentation must be filed by liquidators, all of which can take up to two years, if not longer. Thus, The larger the liquidation, the longer the process of insolvency will last.

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