IBC – The Journey So Far And The Road Ahead

Nov 28 2019 Nayan Saboo

What is IBC? Why IBC?
    The Insolvency and  Bankruptcy Code, 2016 (Code) is one of the most important intriguing legislative reforms in India with an expectation to resolve corporate distress, incumbent non-performing asset (NPA) crisis and resultant logjam in the availability of credit in economy.
The Code’s thrust has been on:

  • Rescue of distressed companies in a timely manner and their rehabilitation
  • Empowering commercial stakeholders to time efficient decisions
  •  Consolidate and amend multiple laws relating to insolvency and bankruptcy
  • Overcoming the difficulties in implementation posed by its predecessor regulations such as CDR, SDR, S4A, etc.
    Due to its structure and intent, the Code has become the most effective route for corporate distress resolution. By the end of September 2019, the Code has yielded successful resolution plan for 156 companies with liabilities of Rs. 3.32 lakh crore and expected realization of Rs. 1.38 lakh crore, implying a recovery rate of 58% for financial and operational creditors. So far, of the 12 large NPA accounts identified by RBI in June 2017, as many as 7 cases have yielded a successful resolution plan with a recovery rate of 48%. While success stories have already been recorded, timely completion of resolution process continues to remain a challenge. Of the cases admitted as on 30 Sept 2019, while 6% cases have been closed by successful resolution, 59% cases are still pending for resolution. Such delayed resolution of cases has been due to periodic re-interpretations of the Code, protracted litigation, absence of clear jurisprudence, etc. Also, with the landscape maturing over time, there has been increase in number of insolvency filings, posing additional challenge in timely resolution.
Additionally, certain concerns requiring immediate attention could be:
  • Sectoral challenges
  • Share for operational creditors
  • Contingent liabilities
  • Alignment with other laws
   The Government has been playing a proactive role in regularly amending the Code to achieve the desired objectives, overcome challenges, deploying resources to strengthen the infrastructure, amending tax and allied laws to ease the financial burden, etc. The Indian Judiciary has also been actively involved in de-cluttering the ambiguities in law. Other participants like Insolvency Board, Insolvency Professionals, Information Utilities, etc. have assisted significantly in implementing the insolvency process.
IBC – Road ahead
   As the ecosystem matures and jurisprudence establishes, challenges can be addressed; thereby increasing confidence of the stakeholders working together. The Code will surely evolve to sort out legal and practical issues that have come to the fore over time. It may be naïve to expect a perfect world, but there is already a sense of co-ordinated turnaround, which will strengthen over time.

      (The writer is a senior manager in Transaction Tax, Ernst&Young, LLP. Views expressed are personal.)  

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