Overview on Mandatory Requirement of AFA under IBC Code

Overview on Mandatory Requirement of AFA under IBC Code

This document provides an overview of the Authorisation for Assignment under the IBBI (Insolvency Professionals) Regulations, outlining its meaning, eligibility criteria, procedural aspects, and key do’s and don’ts for Insolvency Professionals. The AFA is a crucial requirement for insolvency professionals under the Insolvency and Bankruptcy Code, 2016. An IP cannot accept assignments as an Interim Resolution Professional, Resolution Professional, Liquidator, Bankruptcy Trustee, or any other role under the IBC unless they hold a valid AFA issued by their respective Insolvency Professional Agency.  As per Regulation 2(aa) of the IBBI Regulations, AFA is an authorization issued by an Insolvency Professional Agency to its professional members to undertake assignments under the Insolvency and Bankruptcy Code, 2016. Below is a structured summary version of the key points:

• Eligibility for Authorisation for Assignment :

  • As per Clause 12A(2) of the Model Bye-laws, an insolvency professional is eligible for an AFA if they:
    • Are registered with IBBI as an insolvency professional.
    • IP is a fit and proper person as per Regulation 4(g) of IBBI (IP) Regulations.
    • Are not in employment.
    • IP is not debarred by the IPA or IBBI.
    • Are below 70 years of age.
    • Have no pending disciplinary proceedings.
    • Have complied with all regulatory requirements, including:
      • Payment of fees to IPA and IBBI.
      • Necessary filings and disclosures.
      • Continuous professional education.
      • Any other compliance requirements under IBC and related regulations.
    • The application must be submitted to the IPA in the prescribed form along with the required fee. The IPA has 90 days to process and either approve or reject the application. The IP must comply with all conditions set out in the applicable regulations before applying.

• Ineligibility to Undertake an Assignment

  1. Regulation 7A: Since January 1, 2020, an IP cannot accept assignments without a valid AFA. Exception: If an assignment was already undertaken on December 31, 2019 or when an AFA was valid at that time.
  2. IBC Regulation 23: An IP cannot be employed while holding or undertaking an assignment under Authorisation for Assignment. However, a professional can register as an IP while employed but must resign before obtaining an Authorisation for Assignment. An insolvency professional may surrender AFA to take up employment.
• Procedure for Issuing AFA : The IPA will approve or reject the AFA application in Form B. If the IPA does not act within 15 days of receipt, the AFA will be deemed issued or renewed. AFA is valid for one year or until the insolvency professional turns 70, whichever comes first.
• Application for Issue or Renewal of AFA: Application is to be made to the IPA in the prescribed form and with the required fee. Renewal applications:
  • Must be filed before expiry of the existing AFA.
  • Cannot be submitted earlier than 45 days before expiry.
• Employment Restrictions: An individual can register as an insolvency professional while still being employed. However, to obtain and hold an AFA, the individual must discontinue employment. If an insolvency professional wishes to take up employment, they may surrender their Authorisation for Assignment.
• Appeal Against Rejection of Authorisation for Assignment : If AFA is rejected, the applicant may appeal to the Membership Committee within 7 days. The Membership Committee will decide the appeal within 15 days.

Suspension of AFA:

• If disciplinary proceedings are initiated against an IP by the IPA or the Insolvency and Bankruptcy Board of India (IBBI), their AFA shall be automatically suspended. An insolvency professional must apply for surrender of Authorisation for Assignment at least 30 days in advance if they:

1. • Become a resident outside India.
   • Take up employment.
   • Start a business (unless permitted under the Code of Conduct).

• The IPA must inform IBBI within one working day of accepting the surrender. Surrender will not be accepted if:

1. • Authorisation for Assignment is suspended.
   • The insolvency professional is handling an ongoing assignment.
   • Insolvency professional’s name is included in an IBBI panel for assignments.

• Do’s and Don’ts for Insolvency Professionals

✅ Do’s:

• • An IP must not accept an assignment (e.g., CIRP as IRP/RP/Liquidator) unless they hold a valid AFA at the time of acceptance.
  • IP must mention their AFA number & validity in all communications.
  • An IP must surrender their AFA before taking up any employment.

🚫 Don’ts:

• • IP cannot accept new assignments without a valid AFA.
  • An IP cannot be employed while holding an AFA or undertaking an assignment.

• Relevant Legal Provisions

• • Regulation 7A of IBBI (IP) Regulations – Restricts assignment acceptance without a valid AFA.
  • Regulation 12A of Model Bye-Laws & GB of IPA Regulations – Governs issuance and renewal of AFA.
  • Regulation 23A of Model Bye-Laws of an IPA – Restricts employment while holding an AFA.

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