Conflict Disclosure explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Under the integrity and objectivity head of the Code of Conduct, an insolvency professional must act without bias, coercion or undue influence, must make a conflict disclosure to stakeholders whenever a conflict arises during an assignment, and must not acquire the debtor's assets directly or indirectly — nor knowingly permit a relative to do so.
Integrity
An insolvency professional must maintain integrity by being honest, straightforward and forthright in all professional relationships, and must not misrepresent any facts or situations or be involved in any action that would bring disrepute to the profession.
Objectivity — the breadth of the test
An IP must act with objectivity by ensuring decisions are made without the presence of any bias, conflict of interest, coercion, or undue influence of any party, whether directly connected to the insolvency proceedings or not.
That closing phrase is easy to read past and does a lot of work. The objectivity requirement is not confined to influence from parties in the process — creditors, the debtor, resolution applicants. It reaches influence from anyone.
That covers the pressures that do not appear on the record: a referral source, a group entity of a creditor, a professional connection, a person with an interest in the outcome who is not a party. A conflict disclosure is not limited to relationships with participants.
The conflict disclosure obligation
An IP must disclose the details of any conflict of interests to the stakeholders, whenever he comes across such conflict of interest during an assignment — a requirement effective from 23 July 2019.
Three features of the obligation:
- It is continuing. "Whenever he comes across" — not only at acceptance. A conflict disclosure may be required months into an assignment when a new resolution applicant emerges or a group relationship becomes visible.
- It runs to stakeholders, not only to the appointing authority or the committee.
- It requires details, not an acknowledgement that a conflict exists.
In practice this means a standing conflict review at defined points — on constitution of the CoC, on receipt of expressions of interest, on shortlisting resolution applicants, and before the plan is put to vote — with each review recorded whether or not it produces a conflict disclosure.
The asset acquisition bar
An IP appointed as interim resolution professional, resolution professional, liquidator, or bankruptcy trustee:
- should not itself acquire, directly or indirectly, any of the assets of the debtor; and
- should not knowingly permit any relative to do so.
Two words matter. Indirectly catches acquisition through an entity, a nominee or a structure. Knowingly permit puts a positive obligation on the IP in relation to relatives — it is not enough that the IP did not participate.
The narrow exception in liquidation and bankruptcy
Where an IP is dealing with assets of a debtor during a liquidation or bankruptcy process, he must ensure that he or his relatives do not knowingly acquire such assets, directly or indirectly, unless:
- it is shown that there was no impairment of objectivity, independence or impartiality in the process; and
- the approval of the Board has been obtained.
Both limbs are required. Board approval alone does not cure an impairment, and an absence of impairment does not dispense with approval.
Why the standard is strict
The Delhi High Court in Pooja Menghani v. IBBI explained that an IP virtually takes over the company and becomes the heart and brain of the company under the insolvency resolution process, so that a person having the slightest of disqualification cannot be permitted to be appointed as an IP, otherwise the entire purpose of the IBC will get vitiated.
An asset acquisition bar and a continuing conflict disclosure duty follow directly from that position. A person exercising the powers of the board over a distressed company, and controlling the sale of its assets, cannot also be a buyer.
Compliance checklist
- Run a standing conflict review, not a one-off check.
- Make the conflict disclosure to stakeholders, with details.
- Record reviews that produce no conflict as well as those that do.
- Test objectivity against influence from unconnected parties too.
- Apply the asset bar to indirect acquisition and to relatives.
- In liquidation, satisfy both limbs of the exception before any acquisition.
Common mistakes
- A single conflict check at appointment.
- Disclosing only to the CoC rather than to stakeholders.
- Treating a relative's acquisition as outside the IP's responsibility.
- Relying on Board approval alone in the liquidation exception.