IBC: Resolution Professional Vs Consultancy, What About Resolution?

The resolution process for two large insolvent companies may be impacted by a new controversy - the exit of the two resolution professionals from their firm - BDO India Ltd.

According to three people in the know, Mahender Kumar Khandelwal, the resolution professional appointed at Bhushan Power & Steel Ltd. and Vandana Garg, the resolution professional for Jyoti Structures Ltd. are looking to exit BDO India and join rival consulting firm - PricewaterhouseCooper India. This even as their appointment as resolution professionals in the high profile cases continue.

Both the partners are seeking early exit from BDO India, so that they may join PwC this month. However, BDO has tried to block their exit by filing a suit at the Bombay High Court, the people quoted above said.

BDO India's decision to move the Bombay High Court could be because there is very little recourse they have under the Insolvency and Bankruptcy Code, 2016.

The IBC provides for the creation of a new category of professionals, insolvency professionals, to be appointed as resolution professionals that manage companies undergoing insolvency proceedings. Firms are also permitted to do the same job as insolvency professional entities.

A large number of resolution professionals currently managing insolvent companies are externally supported by the consulting firms they work for, though the firms themselves are not registered as insolvency professional entities. Agreements are signed for such support services. The IBC and its regulations are silent on what happens when the resolution professional wants to leave the firm.

That's what seems have happened at BDO according to the people quoted above. BDO is not a registered insolvency professional entity but likely offered supporting infrastructure to its two partners, Khandelwal and Garg, to manage the resolutions. Now they want to leave and take the resolution processes with them, because it's individuals who've been appointed to the cases.

Khandelwal, Garg, BDO India and PwC did not respond to queries sent by BloombergQuint. MS Sahoo, chairman, Insolvency and Bankruptcy Board of India declined to comment on the issue, since he did not have adequate information regarding the case.

Also Read: IBC: Will India's Foreign Exchange Regulations Discourage Foreign Bidders Of Insolvent Assets?

As news of these potential exits became public, questions have been raised on the successful completion of the resolution programmes at both companies and whether Khandelwal and Garg would need to make any changes in the support staff in the resolution process.

According to Mamta Binani, an independent resolution professional, there has been no indication that both the partners are looking at ending BDO's services after they exit the firm. “If this is true, then in no way will this move interfere with the resolution process,” Binani said.

Binani also spoke about the sharing of data between the resolution professional's different employers. According to her, a non-disclosure agreement would need to be signed by Khandelwal and Garg, so that all confidential financial information of the two insolvent companies remain with BDO and are not unduly shared with PwC.

Finally, Binani also sees employment contracts across large consultancies changing, so that partners do not end up leaving firms in the midst of a resolution process.

After this story was filed the two resolution professionals issued a statement saying, “Ms Garg and I have informed our respective lenders that we will surely complete the entire resolution process without any failings and use the services of BDO India for these cases, before we go to our new assignments.”

Also Read: IBC: What It Takes To Become A Suitable Bidder