IBC loose ends

Context:

Outcomes under bankruptcy code continue to fall short of expectations. Measures are needed to improve its functioning.

Overview of Insolvency and Bankruptcy Code (IBC)

• Mandate and Outcomes: Introduced in 2016, IBC aims for resolution or liquidation within strict timelines. The Insolvency and Bankruptcy Board of India (IBBI) oversees proceedings, achieving notable success with 7,058 cases admitted.
• Performance Metrics: IBC's impact is seen in resolved cases, appeals, and withdrawals. Operational creditors benefit, initiating half of the cases. Resolution plans approve in 808 cases, while 2,249 face liquidation, raising concerns over lower-than-expected realizations.
• Timelines and World Bank Rating: IBC addressed delays; still, the average resolution process takes 653 days. The World Bank Ease of Doing Business report notes improvement from 4.3 years pre-IBC but emphasizes ongoing challenges surpassing expected timelines.

Challenges and Measures for Improvement

• Reducing Resolution Time: Challenges persist in meeting the 180-day resolution timeframe. Streamlining the Corporate Insolvency Resolution Process (CIRP) further can expedite insolvency resolution, enhancing overall efficiency.
• Strengthening Role of Resolution Professionals: Resolution Professionals (RPs) are vital; their selection, training, and compensation should be enhanced for competency. Empowering RPs contributes to successful insolvency resolution, ensuring their effectiveness and expertise.
• Addressing Operational Creditor Issues: Operational creditors face recovery challenges. Implementing mechanisms to prioritize and protect their interests within the resolution process is essential, ensuring equitable treatment and fostering confidence in the system.

Recommendations for Enhanced Effectiveness

• Cross-border Cooperation and Alignment: Aligning India's insolvency framework with international standards supports cross-border insolvency proceedings. This alignment aids multinational companies operating in India, fostering international cooperation and compliance.
• Strengthening NCLT Infrastructure: National Company Law Tribunal (NCLT) infrastructure needs improvement. Enhancing capacity and case management systems supports effective adjudication, ensuring the NCLT can handle the growing caseload efficiently.
• Continuous Legal and Procedural Reviews: Regular reviews and updates of the IBC are essential. Addressing legal and procedural issues ensures the code remains relevant, adaptable, and effective in the dynamic landscape of insolvency and bankruptcy proceedings.