Incentive or Windfall? Reconsidering the Resolution Professional’s “Success Fee” under Regulation 34-B

An examination of Regulation 34-B(4) of the IBBI (CIRP) Regulations, 2016, added in 2022, which lets the Committee of Creditors pay a resolution professional a performance-linked incentive of up to Rs 5 crore, treated as a CIRP cost and paid ahead of creditors under Section 53. The author argues this cuts against the Code’s value-maximisation goal and departs from the NCLAT’s earlier position in Ariisto Developers, while accepting the reasoned enhancement of the ordinary fee under the proviso to sub-regulation (2).

The article makes four objections: creditors already take heavy haircuts, so paying the professional first shifts value away from them; the Committee consists only of financial creditors, which creates a conflict of interest with operational creditors; the incentive metric mainly benefits financial creditors while its cost falls on the whole estate; and the flat cap and open-ended discretion bear no relation to the size of the estate. It draws on Swiss Ribbons, Essar Steel and decisions on the reasonableness of fees under Section 60(5)(c), and compares the Indian position with the liquidation regime, the US Bankruptcy Code and the UK insolvency rules.

It recommends recalibrating rather than abolishing incentives: tie the fee to amounts actually distributed to creditors, use a declining scale based on the size of the estate, make the fee subject to the adjudicating authority’s review for reasonableness, reconsider its priority as a CIRP cost, and delete the power to create other incentive structures.