IBBI Warns Insolvency Professionals Against Misuse of IBC.

Regulator calls for stronger due diligence to detect fraudulent or malicious insolvency proceedings.

The Insolvency and Bankruptcy Board of India (IBBI) has directed insolvency professionals (IPs) to exercise greater vigilance and conduct thorough due diligence to prevent misuse of the Insolvency and Bankruptcy Code (IBC). The regulator said it has received inputs indicating that the framework may, in some cases, be used to reduce tax liabilities, avoid regulatory scrutiny, limit investigations or penalties, and shield or monetise assets. IBBI identified several potential warning signs, including companies with common promoters, directors or addresses entering insolvency proceedings around the same time, overlapping creditor committees, limited competition in resolution processes and recurring resolution applicants across connected companies. The regulator said IPs should conduct further inquiries whenever such indicators arise. If an IP believes the process is being used for a fraudulent or malicious purpose, they must approach the Adjudicating Authority and seek appropriate directions under the IBC.