Status as on- 22/12/22
Introduction
Union Finance Minister Nirmala Sitharaman remarked on October 1 at the sixth anniversary of the Insolvency and Bankruptcy Board of India (IBBI) that the “country could not afford to lose the “sheen” of its insolvency law, the Insolvency and Bankruptcy Code” (IBC). The purpose of the finance minister in making this statement is to demonstrate the importance of the insolvency and bankruptcy code. Here are questions that come to our mind-
What is the Insolvency and Bankruptcy code?
It is an Act to Consolidate and Modify the Laws Relating to the Reorganization and Insolvency Resolution of Corporate Persons, Partnership Firms, and Individuals on time for Maximizing the Value of Such Persons’ Assets, Promote Entrepreneurship, access to credit, balancing the interests of all parties involved, including changing the priority order for paying off government obligations, creating an Indian Insolvency and Bankruptcy Board for resolution of disputes related to insolvency and bankruptcy.
For India’s distressed debt, the Insolvency and Bankruptcy Code 2016 (IBC) was a game-changing change. It developed a tool to revitalize struggling distressed debtors, heralding a shift from previous resolution and recovery methods. Since 2016, several steps have been gradually implemented to increase the IBC’s effectiveness. 3,886 applications for the start of the corporate insolvency resolution procedure (CIRP) had already been approved under the IBC before COVID-19. The government put the IBC on indefinite suspension in March 2020 during COVID-19. The administration has unveiled a plethora of initiatives to give borrowers the much-needed relief they require. The number of applications that were accepted for the CIRP’s initiation, as a result, was significantly reduced.
The “time-bound” resolution of the corporate debtor’s debts is one of the IBC’s fundamental characteristics that sets it apart from its forebears. Before the implementation of the IBC, debt resolution procedures using tools like the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act of 2002 (the SARFAESI Act) took an average of 3.5 to 4 years to complete. A CIRP concludes under the IBC in roughly 1.26 years (459 days), which is quicker than the 1.6 years suggested by the Doing Business 2020 report from the World Bank. However, adherence to the legally mandated schedule under the IBC (i.e., 180 days, may be extended to 90 days upon application by the resolution professional.
IBBI released a circular with the number IP/002/2018 on January 3, 2018. According to the aforementioned circular, IBBI has mandated that an insolvency professional should exercise reasonable care and diligence and take all necessary steps to ensure that the corporate person undergoing any process under the IBC complies with applicable laws while acting as an interim resolution professional, a resolution professional, or liquidator for a corporate person under IBC. The government occasionally makes attempts in the form of circulars to strengthen the IBC system to handle insolvency issues.
Despite being a relatively recent piece of law, the IBC has undergone several revisions in a short amount of time to close any gaps or ambiguities that would impede the effective and smooth operation of the Code. The appropriate authorities and legislative think tanks have been instrumental in this trip of IBC by bringing new dimensions of legislation into being within the constrained time frames that further clarified the implications of such significant modifications. The recently passed Ordinance further simplified the challenges associated with putting the Code into practice. Every stakeholder had a significant impact, and their strategy so far has enabled them to achieve the success envisioned in the code. The entire insolvency system has undergone a significant transformation thanks to the IBC 2016.
Disclaimer – The above article is based on the personal interpretation of the related orders and laws. The readers are expected to take expert opinion before relying upon the article. For more information, please contact us at rera@centrik.in
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