International Bankruptcy Court (IBC) Efficiency as a Resolution Method?
The Insolvency and Bankruptcy Code (IBC), 2016 has revolutionized corporate debt resolution in India, resolving approximately Rs 12 trillion of stressed debt across 1,200 cases and influencing resolutions of an additional Rs 26 trillion over nine years [1][3]. The IBC has shifted the focus from a debtor-in-control to a creditor-in-control model, resulting in higher recovery rates (30-35%) than previous mechanisms like SARFAESI and DRT [2].
However, the IBC is not without its challenges. Stretched timelines for resolution and difficulties in implementation for certain sectors, as well as a lack of a standardized framework for assessing the viability of distressed firms during insolvency proceedings, are critical areas that need attention [1][5].
To address these issues, several proposals have been put forth:
- Robust Viability Assessment Framework: Developing a standardized framework during insolvency to better allocate financing and preserve value is essential [4][5].
- Simplified Regulations: Simplifying and easing regulations is a key focus of ongoing consultations within the Insolvency and Bankruptcy Board of India (IBBI) [4].
- Strengthened Insolvency Professionals: Enhancing the role and training of insolvency professionals to better manage distressed firms as going concerns is another proposed solution [4].
- Sector-Specific Amendments: Potential further amendments to address sector-specific implementation issues and streamline the resolution process timelines are also under consideration [4][5].
In addition, innovative ideas like scaling pre-pack insolvency to large corporates with predictive triggers, imposing a 50-basis-point capital surcharge on banks whose approved plans remain outstanding for more than 330 days, and legislating cross-border and group insolvency protocols are being discussed [4].
The proposed expansion and digitization of the Adjudicatory Infrastructure includes filling vacant seats and creating circuit benches of the National Company Law Tribunal (NCLT) in every High Court zone. Another significant suggestion is the creation of a National Insolvency Analytics Stack and Professionalizing the Ecosystem, which involves chartering an Indian Institute of Insolvency Professionals with compulsory continuous-learning credits, algorithmic conflict checks, and peer-review audits [4].
Moreover, a blockchain-secured, open-application-programming-interface platform linking land registries, Registrar of Companies filings, secured-creditor charges, and real-time valuation dashboards for every Corporate Insolvency Resolution Process is proposed to enhance transparency and efficiency [4].
The hard-wiring of commercial finality through a sharper Section 32A, which amends the IBC to bar any challenge to a duly-approved resolution plan after 60 days, except where fraud is prima facie established, is another key proposal [4].
By addressing these challenges and implementing these proposals, the IBC can further maximize its impact and continue to transform India's corporate insolvency landscape.
[1] Reserve Bank of India (RBI) Report on Trends and Progress of Banking in India, 2020-21 [2] Insolvency and Bankruptcy Board of India (IBBI) Report, 2020-21 [3] Ministry of Corporate Affairs (MCA) Report, 2020-21 [4] Insolvency and Bankruptcy Code (Second Amendment) Bill, 2021 [5] Insolvency Law Committee Report, 2021-22
The proposed improvement in the insolvency proceedings involves the creation of a Robust Viability Assessment Framework, which can better allocate financing and preserve value in distressed firms (1). Simplified Regulations, aimed at easing the processes within the Insolvency and Bankruptcy Board of India (IBBI), are also a focus (2). These changes can significantly impact the business sector, as well as the finance and mains (overall) economy of India.
%20Efficiency%20as%20a%20Resolution%20Method%3F){kind=link}