Insolvency and Bankruptcy - Law and Practice · Professional and Ethical Practices for Insolvency Practitioners

Professional Ethics, Fees and Practical Conduct of Insolvency Professionals

Updated 11 October 2026 · Fact-checked

Professional ethics for an insolvency professional means acting with integrity, independence and impartiality, avoiding conflicts of interest, charging only fees fixed in the manner specified and approved by the creditors, and keeping proper records. In exam answers, state the rule, apply it to the facts, and conclude with the action the professional should take.

Understand Professional Ethics, Fees and Practical Conduct

An insolvency professional (IP) holds a position of trust. Debtors, creditors, employees and the Adjudicating Authority all rely on the IP to run the process fairly. That is why the Code places the IP under a registered agency and the Board, and why ethics is tested as a practical topic.

The Code sets the frame. An IP must first be a member of an insolvency professional agency and then register with the Board (section 207). The agency lays down standards of professional conduct, monitors its members, handles grievances against them, and can suspend or cancel membership on the grounds in its bye-laws (section 204). The Board registers agencies and IPs, specifies standards, inspects, investigates, and decides complaints (section 196). Agencies are registered with regard to the principles in section 200, including promoting good professional and ethical conduct.

Three ideas drive most case studies. Independence is about your relationships: you must not have a financial, personal or professional link that could compromise you. Impartiality is about your decisions: you treat all stakeholders fairly and do not favour one creditor, the promoter or the bidder. A conflict of interest arises when your own interest, or a related party's, could affect your judgment. The detailed Code of Conduct is in the IBBI regulations and the agency bye-laws; the principle is to disclose, avoid or step aside.

Fees and expenses follow a set pattern. Take the pre-packaged process as an example from the Code: the RP's fees and expenses are determined in the specified manner. The committee of creditors may impose limits and conditions. Fees for the period before the committee is constituted need its ratification (section 54F(6)). The same logic applies in other processes: fees are not self-fixed, they are approved, and they must be reasonable and recorded.

Record keeping completes the picture. An IP who has access to the debtor's books, bank information and electronic records (section 54F(3)-(4)) must keep working papers, minutes, claim lists and communications. These records support your decisions during inspection, a complaint or a disciplinary inquiry. In practice, a decision you cannot document is a decision you cannot defend.

Key rules to remember

Route to practice: Membership of an insolvency professional agency → registration with the Board; Section 207(1). Registration must be within the time, manner and fee specified by regulations.
Agency functions: Grant membership + set conduct standards + monitor + safeguard members' interests + suspend or cancel membership + redress grievances + publish information; Section 204. Suspension or cancellation is only on grounds set out in the agency's bye-laws.
Board functions on IPs: Register, specify standards, inspect and investigate, monitor, call for records, redress complaints; Section 196(1). The Board also has civil court powers on discovery, summons, inspection and commissions (section 196(3)).
Fee approval rule (pre-pack RP): Fees fixed in specified manner; CoC may impose limits and conditions; pre-CoC fees need CoC ratification; Section 54F(6). Use it as the model rule for fee questions on that process.
Cooperation duty: Personnel, promoters and managers must assist the RP; financial institutions must give information; Section 54F(4) and (5).
Ethics test: Disclose → avoid or recuse → act impartially → document; A working answer structure, not a statutory formula.

How to solve Professional Ethics, Fees and Practical Conduct questions

Use this order for any case-based question on ethics, conflict, fees or records.

1Identify the role and process: IRP, RP, liquidator or other, and the stage of the process.
2List the facts that touch ethics: relationships, payments, gifts, related parties, fee demands, missing records.
3State the rule in plain words: independence, impartiality, conflict of interest, fee approval, or record keeping. Cite a section only if you are sure of it.
4Apply the rule to each fact. Say whether it creates a conflict or breach and why.
5Name the correct action: disclose, seek approval or ratification, decline or resign, correct the record.
6State the consequence of non-compliance: complaint, inspection or investigation by the Board, and action by the agency, which may include suspension or cancellation of membership.
7Conclude in one line with the clear answer to the question asked.

Quickest way: Four-line ethics answer

When to use it: When time is short and the question asks what the IP should do.

Rule: one line on independence, impartiality or fee approval.
Fact: point to the exact fact that breaches or risks breaching it.
Action: disclose, get CoC approval, step aside, or fix records.
Risk: mention Board and agency action in one line.

Common mistakes in Professional Ethics, Fees and Practical Conduct

Treating independence and impartiality as the same thing.
Both words sound like 'no bias'.
Fix: Independence concerns relationships and interests. Impartiality concerns how you decide and treat stakeholders. Write one line for each.
Saying the IP can fix and pay his own fees.
Students think fees are a matter of professional discretion.
Fix: Say fees are determined in the specified manner and the committee of creditors can set limits and conditions. Pre-CoC fees need ratification.
Ignoring conflict that arises through relatives or related firms.
Students look only at the IP's direct dealings.
Fix: Check associates, relatives and firms linked to the IP. Disclose and recuse if there is any link that could affect judgment.
Quoting section numbers from memory.
Students want the answer to look precise.
Fix: Use section numbers only when sure, such as 196, 200, 204, 207 and 54F. Otherwise state the rule in words.
Forgetting records and documentation.
Records feel like routine work, not a legal issue.
Fix: Add a line on minutes, claim lists, working papers and communication. They are what the Board examines in an inspection.
Giving a general moral answer without a legal consequence.
Ethics questions look like opinion questions.
Fix: End with the regulatory consequence: complaint, inspection, investigation, and agency action on membership.

Worked examples

Example 1

Mr. Rao, an insolvency professional, is appointed RP of Sundaram Textiles Ltd. Before accepting, he recalls that his sister's firm supplied raw material to the company and is owed ₹40 lakh, and may be a creditor. Advise Mr. Rao.

Show the solution

Rule: an IP must be independent and impartial and must avoid conflicts of interest. If his own or a relative's interest could affect his judgment, he must disclose and avoid the assignment.
Facts: his sister's firm is a likely creditor. This is a financial link through a close relative, and the claim could come before him for verification and before the committee of creditors.
Application: he would have to decide on a claim in which a relative has a stake. That risks both his independence (the relationship) and his impartiality (his decisions).
Action: he should disclose the relationship and decline the appointment. If he proceeds, disclosure must be complete and the stakeholders can then decide.
Consequence: accepting without disclosure invites a complaint, and the Board or his agency can take action, including suspension or cancellation of registration or membership as the rules provide.

Answer: Mr. Rao has a conflict of interest through his sister's firm, a likely creditor. He should disclose it and decline the assignment. Proceeding without disclosure would breach independence and impartiality and expose him to action by the Board and his agency.

Example 2

In a pre-packaged insolvency resolution process, the RP incurs fees and expenses of ₹6,00,000 before the committee of creditors is constituted. After the committee is formed, it wants to cap the RP's further fees. Explain the legal position.

Show the solution

Rule: section 54F(6) says the RP's fees and expenses are determined in the specified manner.
First proviso: the committee of creditors may impose limits and conditions on fees and expenses. So the cap is allowed.
Second proviso: fees and expenses for the period before the committee is constituted are subject to its ratification. So the ₹6,00,000 is not final until ratified.
Practice point: the RP should keep a record of the work done and expenses incurred before the committee's formation, so ratification can be sought on evidence.
Under section 54F(7), who bears the fees and expenses is also decided in the specified manner.

Answer: The committee can cap further fees, as it may impose limits and conditions. The ₹6,00,000 incurred earlier needs the committee's ratification, so the RP should present supporting records and seek it.

Exam tips

In case studies, name the conflict first, then decide whether the IP should disclose, decline or continue with safeguards.
Always write independence and impartiality separately when both are relevant, with one fact for each.
For fees, use the pattern: specified manner, committee limits, ratification of early fees. Do not invent amounts or percentages.
Link records to inspection and investigation powers of the Board in section 196, as it adds a legal basis to a practical point.
Close each answer with a one-line conclusion and the regulatory consequence.

Practice questions from Professional and Ethical Practices for Insolvency Practitioners

Professional Ethics, Fees and Practical Conduct in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

NISM CertificationsCode of Conduct, Ethics and Conflict of Interest

Professional Ethics, Fees and Practical Conduct: frequently asked questions

What is the difference between independence and impartiality for an insolvency professional?

Independence is about having no relationship or interest that could compromise you. Impartiality is about treating all stakeholders fairly in your decisions. A professional can be independent on paper yet act partially, so exams expect you to address both.

Who fixes the fees of a resolution professional?

Fees are determined in the manner specified under the Code and regulations. In the pre-packaged process, the committee of creditors may impose limits and conditions, and fees before its constitution need its ratification (section 54F(6)).

Who can take action against an insolvency professional for misconduct?

The Board can inspect, investigate and pass orders on complaints (section 196). The agency can monitor its members and suspend or cancel membership on its bye-law grounds (section 204).

Why does record keeping matter in ethics questions?

Records show how and why you took decisions. They are the evidence in an inspection or complaint, and they support fee claims and ratification.