{"id":30543,"date":"2024-10-08T17:59:14","date_gmt":"2024-10-08T12:29:14","guid":{"rendered":"https:\/\/www.nextias.com\/ca\/?p=30543"},"modified":"2024-10-08T17:59:15","modified_gmt":"2024-10-08T12:29:15","slug":"reforms-needed-to-boost-recovery-rates-of-insolvency-and-bankruptcy-framework","status":"publish","type":"post","link":"https:\/\/www.nextias.com\/ca\/current-affairs\/08-10-2024\/reforms-needed-to-boost-recovery-rates-of-insolvency-and-bankruptcy-framework","title":{"rendered":"Reforms Needed to Boost Recovery Rates of Insolvency and Bankruptcy framework"},"content":{"rendered":"\n<p><strong>Syllabus: GS3\/ Economy<\/strong><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Context<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>The Parliament\u2019s Standing Committee on Finance, has flagged concerns and the need to rethink the Insolvency and Bankruptcy Code (IBC) 2016 design.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Insolvency and Bankruptcy Code (IBC) 2016<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>IBC was introduced in 2016<\/strong> to address rising Non Performing Assets and ineffective debt recovery mechanisms in India.<\/li>\n\n\n\n<li>It aims to overhaul the <strong>corporate distress resolution system<\/strong>, replacing debtor-controlled regimes with <strong>creditor-in-control mechanisms<\/strong> for time-bound resolutions.<\/li>\n\n\n\n<li>According to the <strong>Insolvency and Bankruptcy Board of India (IBBI) <\/strong>objectives of the IBC resolution are;\n<ul class=\"wp-block-list\">\n<li><strong>Business Revival: <\/strong>To save businesses through restructuring, changes in ownership, or mergers,<\/li>\n\n\n\n<li><strong>Maximization of Asset Value:<\/strong> To preserve and maximize the value of the debtor&#8217;s assets,<\/li>\n\n\n\n<li><strong>Promoting Entrepreneurship and Credit:<\/strong> To encourage entrepreneurship, improve credit availability, and balance the interests of stakeholders, including creditors and debtors.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>How has IBC helped improve resolutions?<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>As of <strong>March 2024<\/strong>, the gross NPA (GNPA) ratio of banks stood at Rs 4.8 trillion, or 2.80% of the loans outstanding, at a historical low.<\/li>\n\n\n\n<li>The share of the number of cases resolved through the resolution plan rose to <strong>38% in FY 2024<\/strong> from 17% in FY 2018.<\/li>\n\n\n\n<li>Since the introduction of IBC, India has improved its <strong>Ease of Doing Business <\/strong>ranking (basis World Bank report 2020), particularly in \u2018Resolving Insolvency\u2019, from 136 in 2016 to<strong> 52 in 2020.<\/strong><\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>What are the Concerns?<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Procedural Delays: <\/strong>The average resolution time at the National Company Law Tribunal (NCLT) increased to 716 days in FY24. Longer delays correlate with lower recovery rates.<\/li>\n\n\n\n<li><strong>Steep Haircuts: <\/strong>Cases resolved within <strong>330 days <\/strong>had<strong> <\/strong>a<strong> 49.2%<\/strong> recovery rate, but this dropped to <strong>26.1%<\/strong> for cases taking over <strong>600 days.<\/strong> These haircuts (reduced recoveries) are a major concern for creditors.<\/li>\n\n\n\n<li><strong>Legal Issues: <\/strong>The Supreme Court in 2022, ruled that the NCLT\u2019s 14-day period for admitting cases is not mandatory. This gives the NCLT discretionary powers, slowing down case admissions.\u00a0<\/li>\n\n\n\n<li><strong>Human Resource Crunch: <\/strong>The NCLT is facing a shortage of personnel. With over 20,000 cases pending annually, the lack of adequate staffing is crippling the system.<\/li>\n\n\n\n<li><strong>The absence of a clear framework for cross-border insolvency <\/strong>and the unique challenges faced by sectors like real estate, power, and infrastructure further complicate insolvency resolutions under the IBC.\u00a0<\/li>\n\n\n\n<li><strong>Countries like the UK, US, and Singapore<\/strong> resolve insolvency cases within a year, while India\u2019s IBC cases average over 600 days, highlighting the need for reforms.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Way ahead<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>To overcome the challenges within the Insolvency and Bankruptcy Code (IBC), several reforms have been proposed:\n<ul class=\"wp-block-list\">\n<li><strong>Integrated Technology Platform: <\/strong>Ensuring transparency, consistency, and efficiency in the resolution process.<\/li>\n\n\n\n<li><strong>Reforms in NCLT:<\/strong> Expanding from the current 15 benches, appointing more members, and introducing new tribunals under the Companies Act, 2013.<\/li>\n\n\n\n<li><strong>Pre-Packaged Insolvency for MSMEs: <\/strong>To expedite resolution for smaller businesses.<\/li>\n\n\n\n<li><strong>Out-of-Court Settlements:<\/strong> Encouraging settlements to reduce haircuts and court proceedings.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li>By addressing challenges such as process delays, overburdened courts, and creditor reluctance towards haircuts, India can bridge the gap with mature frameworks such as those in the advanced economies.<\/li>\n<\/ul>\n\n\n\n<p><strong>Source: <\/strong><a href=\"https:\/\/indianexpress.com\/article\/business\/economy\/with-long-delays-and-steep-haircuts-chorus-for-revamping-ibc-grows-louder-9605768\/\" target=\"_blank\" rel=\"noopener\"><strong>IE<\/strong><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The Parliament\u2019s Standing Committee on Finance, has flagged concerns and the need to rethink the Insolvency and Bankruptcy Code (IBC) 2016 design.<\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[21],"tags":[],"class_list":["post-30543","post","type-post","status-publish","format-standard","hentry","category-current-affairs"],"acf":[],"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/30543","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/comments?post=30543"}],"version-history":[{"count":1,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/30543\/revisions"}],"predecessor-version":[{"id":30544,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/30543\/revisions\/30544"}],"wp:attachment":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/media?parent=30543"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/categories?post=30543"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/tags?post=30543"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}