Why are creditors going after bankruptcy professionals now?

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Subscribe to enjoy similar stories. Bankruptcy resolution professionals who shepherd broke companies to their new homes are increasingly under fire from lenders, at a time of shifting landscape in India's insolvency resolution. Over the last two years, a number of RPs have found themselves in the dock, on charges varying from wrongful classification of creditors and collusion with previous managements, to mismanagement of daily affairs.

Lenders' clashes with RPs are rising as the insolvency cases reach the stage of adjudication, said Ashish Pyasi, founder of Aendri Legal. "Creditors are pushing for a change of RP if the decision taken by him is not suited to the creditors; then, they prefer to replace them and want to have complete control over the resolution process", said Pyasi, whose law firm specializes in insolvency, dispute resolution and commercial litigation. As of 30 June, 1,973 corporate insolvency cases were under various stages, according to data from the Insolvency and Bankruptcy Board of India (IBBI).

Insolvency lawyers said when allegations reach the courts, the resolution process slows or stalls. A change of RP makes it worse. In the case of gaming and entertainment company Smaaash, founder Shripal Morakhia accused RP Bhrugesh Amin of corporate governance issues, and collusion with the management to secure pay hikes.

Nazara Technologies has been approved as the successful resolution applicant to turnaround Smaaash. "In many cases, the RP faces challenges in obtaining access to sufficient information necessary for managing the company’s operations and collecting data during the insolvency process. While the IBC law provides a framework for this process, practical issues often arise due to limitations in