{"id":4564,"date":"2022-10-06T00:00:00","date_gmt":"2022-10-06T00:00:00","guid":{"rendered":"https:\/\/www.nextias.com\/current_affairs\/uncategorized\/06-10-2022\/insolvency-and-bankruptcy-code\/"},"modified":"2022-10-06T00:00:00","modified_gmt":"2022-10-06T00:00:00","slug":"insolvency-and-bankruptcy-code","status":"publish","type":"post","link":"https:\/\/www.nextias.com\/ca\/current-affairs\/06-10-2022\/insolvency-and-bankruptcy-code","title":{"rendered":"Insolvency and Bankruptcy Code"},"content":{"rendered":"<p><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong><u>Context<\/u><\/strong><\/span><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">At the sixth anniversary of the Insolvency and Bankruptcy Board of India (IBBI) on October 1, the Union Finance Minister voiced concerns over banks taking a hefty haircut on loans that go through the resolution process under Insolvency and Bankruptcy Code (IBC).<\/span><\/span><\/span><\/li>\n<\/ul>\n<p><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong><u>About IBC<\/u><\/strong><\/span><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>Introduction:<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"> IBC was introduced in 2016 when India\u2019s Non\u00ad Performing Assets (NPA) and debt defaults were piling up and older loan recovery mechanisms were performing badly.<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>Aims:<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">\u00a0<\/span><\/span><\/span><\/li>\n<\/ul>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">To overhaul the corporate distress resolution regime in India.\u00a0<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">To consolidate existing laws to create a time bound mechanism with a creditor-\u00adin-\u00adcontrol model as against the debtor in possession system.\u00a0<\/span><\/span><\/span><\/li>\n<\/ul>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>Outcomes:<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"> As per the IBC triggered insolvency, there are just two outcomes: resolution or liquidation.\u00a0\u00a0<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:13pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><span style=\"background-color:#ffffff\"><strong>Three classes of persons <\/strong><\/span><\/span><\/span><\/span><span style=\"font-size:13pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><span style=\"background-color:#ffffff\">can trigger the corporate insolvency resolution process (CIRP) which are financial creditors, operational creditors and corporate debtors.<\/span><\/span><\/span><\/span><\/li>\n<\/ul>\n<p><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong><u>Objectives of the IBC Resolution<\/u><\/strong><\/span><\/span><\/span><\/p>\n<p><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">According to its regulator IBBI, the objectives of the IBC resolution are<\/span><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">To find a way to save a business through restructuring, change in ownership, mergers etc.\u00a0<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">To maximize the value of assets of the corporate debtor\u00a0<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">To promote entrepreneurship, availability of credit, and balancing of interests.\u00a0<\/span><\/span><\/span><\/li>\n<\/ul>\n<p><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong><u>Challenges for the IBC<\/u><\/strong><\/span><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>Lack of proper resolution<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">: As per the IBBI data of 3400 cases in the last six years, more than 50% of the cases ended in liquidation while only 14% cases found a proper resolution.\u00a0<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>Huge delays in resolution<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">: Initially, IBC was touted as a time bound mechanism. The amended IBC act made the total timeline for completion of the resolution process to 330 days from the earlier 180\u00ad day deadline (with a permitted 90\u00ad day extension).\u00a0<\/span><\/span><\/span><\/li>\n<\/ul>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">However, in FY22, it took 772 days to resolve cases involving companies owing more than ?1,000 crore. Also, the average number of days taken for resolution of such cases increased rapidly over the past 5 years.\u00a0\u00a0<\/span><\/span><\/span><\/li>\n<\/ul>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>Haircuts:<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"> It means the debt foregone by the lender as a share of the outstanding claim.\u00a0<\/span><\/span><\/span><\/li>\n<\/ul>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">The Parliamentary Standing Committee on Finance in 2021 noted an average haircut of 80% by the creditors in more than 70% of the cases in the 5 years of the IBC.\u00a0<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">As per The Hindu Data Team, almost 33 of 85 companies with more than ?1,000 crore debt had been given haircuts above 90% by the lenders.<\/span><\/span><\/span><\/li>\n<\/ul>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">For example, the Videocon Group was given a haircut of 95.3% by the creditors.\u00a0<\/span><\/span><\/span><\/li>\n<\/ul>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><span style=\"background-color:#ffffff\"><strong>Lack of digitisation<\/strong><\/span><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><span style=\"background-color:#ffffff\"> has led to the delays beyond the prescribed statutory limits in the insolvency resolution process.<\/span><\/span><\/span><\/span><\/li>\n<\/ul>\n<p><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong><u>Achievements<\/u><\/strong><\/span><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>Addressing NPA problem<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">: The IBC was instrumental in reviving India\u2019s insolvency regime and successfully addressing the looming threat of NPAs.<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>Credit discipline: <\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">Ease of credit flow is necessary for attainment of Ease of doing business and economic growth. Under the IBC regime, Rs. 2.5-lakh crore has been brought back into the banking system as a result of resolution of insolvencies.<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>The World Bank\u2019s report: <\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">India\u2019s rank in resolving insolvency went from 136 in 2017 to 52 in 2020, after the implementation of the IBC in 2016.<\/span><\/span><\/span><\/li>\n<\/ul>\n<p><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong><u>Insolvency and Bankruptcy Code (Amendment)bill, 2021\u00a0<\/u><\/strong><\/span><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>The Pre-packaged Insolvency Resolution Process (PIRP)<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">\/<\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>\u2018pre-packs<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">\u2019 was proposed as an insolvency resolution mechanism for Micro, Small and Medium Enterprises (MSMEs).<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>Aim<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">: PIRP process in the Code will address the issues faced by MSMEs due to the impact of the pandemic and the unique nature of their business, duly recognizing their importance in the economy.<\/span><\/span><\/span><\/li>\n<\/ul>\n<p><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong><u>Way Forward<\/u><\/strong><\/span><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>The Parliamentary Standing Committee<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"> suggested that the timeline of not more than 30 days to admit the insolvency application and transfer control of the company to a resolution process after filing.\u00a0<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>New yardstick to measure haircuts<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">: The IBBI suggested that haircuts not be looked at as the difference between the creditor\u2019s claims and the actual amount realized. But the difference between what the company offers while entering IBC and the value realized.<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>Optimum budgetary allocations<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"> for upskilling insolvency professionals, improving tribunal infrastructure and for digitisation of the insolvency resolution process.<\/span><\/span><\/span><\/li>\n<\/ul>\n<p><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>Source: TH<\/strong><\/span><\/span><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Context At the sixth anniversary of the Insolvency and Bankruptcy Board of India (IBBI) on October 1, the Union Finance Minister voiced concerns over banks taking a hefty haircut on loans that go through the resolution process under Insolvency and Bankruptcy Code (IBC). About IBC Introduction: IBC was introduced in 2016 when India\u2019s Non\u00ad Performing [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":4565,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[21],"tags":[26,46],"class_list":["post-4564","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-current-affairs","tag-gs-3","tag-indian-economy-related-issues"],"acf":[],"jetpack_featured_media_url":"https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/ca\/uploads\/2023\/07\/6468323Screenshot_6.png","_links":{"self":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/4564","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\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/comments?post=4564"}],"version-history":[{"count":0,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/4564\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/media\/4565"}],"wp:attachment":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/media?parent=4564"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/categories?post=4564"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/tags?post=4564"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}