Insurance for Insolvency Professionals - An IRDAI Initiative
Author : Sarthak Ohri.
Date: July 26, 2019.
With the growth of a profession, grows the economy, grows the professionalism & professional risk but little did we knew that with such growth, grows a trend to kidnap too. Since the inception of Insolvency and Bankruptcy Code, 2016 (IBC) there have been some cases where the Resolution Professional (RP) was kidnapped as the kidnappers thought that RP would not recover their money. While kidnappings have been very few various incidents are being reported where the RP was beaten up or threatened which forced them to take up a temporary security cover.
RP's in India not only face criminal risk but a high degree of professional risk as well. The role of RP is such that he is prone to litigation involving his professional misconduct. Let's assume that a financial creditor bank raises a question that during the resolution period the RP didn’t run the company properly or could have had run the company in a particular manner, then the value from the sale of the company could have been 15%-30% higher.
Post such incidents many Insolvency Professionals approached the Insolvency and Bankruptcy Board of India (IBBI) requesting an insurance for the risks they face, after which the IBBI approached the sole insurance regulator of India, IRDAI to provide a tailor-made insurance for IP's who are vulnerable to be a victim of a crime or for protection of their assets.
Several insolvency professionals still take a professional indemnity cover that offers basic insurance against legal proceedings if a case is filed against their conduct. But, specialised covers for insolvency professional was something that was not available earlier. Several insurance companies showed a keen interest in this new product like JLT Independent, ICICI Lombard, New India Assurance and National insurance.
Their products have been designed for the resolution professionals and liquidators, providing them with insurance protection during the CIRP period. Their risk engineers visit plants of the corporate debtors. They analyse and review the insurance policies of the corporate debtors and monitor the insurance placement during the Corporate Insolvency Resolution Process CIRP period. The cover is offered for a period of at least three to five years post the resolution transaction because claims could arise and the IP is responsible under the law. The policies are taken by the individual IPs themselves who are working with insolvent companies or by companies and consultancy firms that have started offering solvency services. Such products cover not only the professional risk but the safety risk as well.
Today India's stressed assets stand above Eight lakh crores. Considering this fact there is a huge demand for Insolvency Professionals in the coming decade. Such indemnification products are a boon to the growth of a profession which has recently bud out the dicots (first two true leaves) and is soon going to bloom the flowers in the form of a rising economy.
With the growth of a profession, grows the economy, grows the professionalism & professional risk but little did we knew that with such growth, grows a trend to kidnap too. Since the inception of Insolvency and Bankruptcy Code, 2016 (IBC) there have been some cases where the Resolution Professional (RP) was kidnapped as the kidnappers thought that RP would not recover their money. While kidnappings have been very few various incidents are being reported where the RP was beaten up or threatened which forced them to take up a temporary security cover.
RP's in India not only face criminal risk but a high degree of professional risk as well. The role of RP is such that he is prone to litigation involving his professional misconduct. Let's assume that a financial creditor bank raises a question that during the resolution period the RP didn’t run the company properly or could have had run the company in a particular manner, then the value from the sale of the company could have been 15%-30% higher.
Post such incidents many Insolvency Professionals approached the Insolvency and Bankruptcy Board of India (IBBI) requesting an insurance for the risks they face, after which the IBBI approached the sole insurance regulator of India, IRDAI to provide a tailor-made insurance for IP's who are vulnerable to be a victim of a crime or for protection of their assets.
Several insolvency professionals still take a professional indemnity cover that offers basic insurance against legal proceedings if a case is filed against their conduct. But, specialised covers for insolvency professional was something that was not available earlier. Several insurance companies showed a keen interest in this new product like JLT Independent, ICICI Lombard, New India Assurance and National insurance.
Their products have been designed for the resolution professionals and liquidators, providing them with insurance protection during the CIRP period. Their risk engineers visit plants of the corporate debtors. They analyse and review the insurance policies of the corporate debtors and monitor the insurance placement during the Corporate Insolvency Resolution Process CIRP period. The cover is offered for a period of at least three to five years post the resolution transaction because claims could arise and the IP is responsible under the law. The policies are taken by the individual IPs themselves who are working with insolvent companies or by companies and consultancy firms that have started offering solvency services. Such products cover not only the professional risk but the safety risk as well.
Today India's stressed assets stand above Eight lakh crores. Considering this fact there is a huge demand for Insolvency Professionals in the coming decade. Such indemnification products are a boon to the growth of a profession which has recently bud out the dicots (first two true leaves) and is soon going to bloom the flowers in the form of a rising economy.
Disclaimer: All views expressed on this page are the author's own as part of his research and do not represent the opinion of any entity with which the author is, or have been associated.
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