Insolvency and Bankruptcy Code (IBC), 2016: Evaluation and Reforms
The Insolvency and Bankruptcy Code (IBC), 2016 is regarded as one of the most significant reforms in recent years in India's economic landscape. The government, along with the Insolvency and Bankruptcy Board of India (IBBI), is committed to improving the bankruptcy framework.
Recent Discussion Paper by IBBI
- The IBBI published a discussion paper focusing on the committee of creditors (CoCs) to enhance procedural clarity and reduce resolution friction.
- The paper identifies inconsistencies in how CoC meetings are recorded, noting a lack of clarity and detail, which could lead to litigation and delays.
Proposals for Improvement
- CoCs should record deliberations on expected recovery versus fair and liquidation value.
- Documentation of market discovery adequacy during the resolution process is essential.
- CoCs must evaluate the credibility of the resolution applicant and ensure resolution plan implementation certainty.
- Objective: Make CoC's resolution plan approval conscious, informed, and well-documented.
Continuing Operations and Delayed Claims
- CIRP operations should align with expected outcome values and commercial prudence.
- Delayed claims accepted by the resolution professional must be presented to the adjudicating authority (AA) and CoC within a week.
- Proposal to exclude related operational creditors from CoCs.
Challenges and Capacity Constraints
Despite these proposed improvements, the desired outcomes are yet to be achieved:
- The average time for resolution plans is 619 days, surpassing the intended 330-day maximum.
- The National Company Law Tribunal and Appellate Tribunal face capacity challenges, hindering the framework's efficiency.
- Addressing these capacity issues is crucial for a streamlined exit path, promoting efficient capital reallocation and investment.
