Building an institution of insolvency practitioners in India

Abstract

A good insolvency and bankruptcy regime ensures the prompt and fair resolution of financial distress. This paper identifies the rationale for creating a cadre of insolvency professionals who can play an important role in the process of rescuing, restructuring or liquidating a distressed firm. It proposes that the primary objective of creating a regulated cadre of professionals is to protect consumers i.e. the distressed firm and creditors of such firms. The primary task of regulating such professionals should be left to Self Regulatory Organisations (SROs). The state should, in turn, regulate these SROs to ensure that they are discharging their functions effectively. The paper cites evidence from other areas where SROs have played an effective regulatory role in protecting consumers. Finally, the paper ends by providing prescriptions on the regulatory framework for insolvency professionals and the SROs that would regulate them.