Go Beyond the ABC of IBC

Context: IBC must acquire more exceptional capabilities to sustain gains made. Only then can it accomplish its core objectives of time-bound value maximisation, promoting entrepreneurship and availability of capital, and balancing the interests of all stakeholders.

IBC as a game-changer:

• Introduced market-driven mechanism: to the problem of NPA’s

• Banks gained due to speedier and higher recoveries.
• NPAs fell for the first time in seven years from 11.2% in 2018 to 9.1% in 2019.

• Benefits to other stakeholders: such as vendors, employees, and GoI by way of tax revenues.

• Improved credit culture: due to responsible behaviors of borrowers and creditors.

• Strengthened institutions dealing with insolvency: like Insolvency and Bankruptcy Board of India (IBBI), National Company Law Tribunal (NCLT), the committee of creditors, and information utility.

• NCLT handled an average of 22 cases per day, with one in two cases disposed before admission through mediation.
• Huge capacities: to handle outstanding dues of about 10% of India’s GDP.

Critics of The IBC:

• Steep haircuts: mainly dependent on delays and the asset losing its value over time.

• Inconsistency across NCLT benches

• Non-acceptance of the approved resolution plan by stakeholders especially government agencies and regulators.

• Cumbersome processes in the identification of debtors leading to clogging in the debt recovery tribunals.

Significant amendments to IBC

• Debarring NPA holders from participating in the bidding process.

• Recognition of homebuyers as financial creditors.

• Special dispensation for MSMEs.

• Post-admission withdrawal for an out-of-court settlement.

• Approved resolution plan binding on all stakeholders.

• Ring-fencing the corporate debtor and successful resolution applicant from criminal prosecution;

• Super seniority status for last-mile funding of stressed assets.

Way forward: For an IBC 2.0

• Simplified Non-adjudicatory Free Start-Process (FSP): aims to provide relief to individual debtors from the weakest category 

• Pre-packs: implemented as done in the UK and US which act as a hybrid of out-of-court resolution and court-supervised one, which is cheaper and speedier.
• However, concerns remain in terms of confidentiality and non-competitiveness. 

• Focus on cross-border insolvency: UN Commission on International Trade Law (UNCITRAL) provides a common framework with enough flexibility and can be adopted.

• Enterprise Group Insolvency: UNCITRAL framework on group insolvency will enhance IBC’s capability to deal with the corporate debtor having multiple deeply interconnected subsidiaries.