The Insolvency and Bankruptcy Code: Changes are needed to ensure its smooth functioning
- May 18, 2023
- Posted by: Akarias
- Category: Blog
The shift to the Insolvency and Bankruptcy Code in 2016 was a step towards reconfiguring the credit culture in the country, by providing for a time-bound resolution process that tried to move the balance of power in favour of creditors. However, the data that is frequently put out by the Insolvency and Bankruptcy Board of India suggests that the outcomes under this resolution framework have been less favourable than expected. For instance, the time taken for resolving cases generally tends to exceed the timelines originally envisaged and the realisations of creditors, both financial and operational, have been lower than expectations.
Thank you for reading this post, don't forget to subscribe!At the end of March, 6,571 cases had been so far admitted under this framework. Considering that around half of these proceedings were initiated by operational creditors, this does suggest that the Code has been able to serve as a powerful instrument for these firms, which are typically small and medium enterprises, to try to recover their dues from the larger companies. Of these admitted cases, 4,515 cases have been closed, while proceedings are ongoing in the remaining. And of the cases closed, a staggering 45 per cent have ended up in liquidation, while the rest have been either resolved, withdrawn or appealed. In the cases where the process has yielded resolution plans, realisations of creditors have been low. Of the total admitted claims of creditors estimated at Rs 8.98 lakh crore in these cases, the total realisable value was only Rs 2.86 lakh crore. This works out to only 31.8 per cent. Then there are the delays in the process to contend with. Of the cases that are currently going through resolution proceedings, almost two-thirds have crossed the 270-day deadline. And in the cases currently undergoing liquidation, 55 per cent have been going on for more than two years. Such delays, beyond the prescribed timelines, are unfortunate as they lead to further destruction in the value of assets.