What is the Insolvency and Bankruptcy Code?

Last Updated07/10/2022

Recently at the sixth anniversary of the Insolvency and Bankruptcy Board of India (IBBI), the Union Finance Minister highlighted the importance of the Insolvency and Bankruptcy Code (IBC).

To simplify and expedite the Insolvency and Bankruptcy Proceedings in India.
Consolidate and amend all existing insolvency laws in India.
To protect the interest of creditors including stakeholders in a company.
To revive the company in a time-bound manner.
To maximise the value of assets of the corporate debtor
To promote entrepreneurship, availability of credit, and balancing of interests.

Timeliness is key here so that the viability of the business or the value of its assets does not deteriorate further.
Initially a 180-day deadline with a permitted 90-day extension to complete the resolution process.
Later amended to make the total timeline for completion 330 days — which is almost a year.
Infrastructure Issues: lack of NCLT members, the large number vacancies , and the delays in appointments.
Legacy Issues: Many IBC cases are really old issues involving the stock of NPAs [Non-Performing Assets].
Procedural Holdups: There are delays in execution, whether they relate to approvals or the admission of an application.
Lack of buyers: There aren't many strategic investors in India.
An asset will have interest or value only if there are more people who are ready to buy.
Better asset value realization will lead to faster resolution of stressed companies

The Parliamentary Standing Committee suggested that the time taken to admit the insolvency application and transfer control of the company to a resolution process, should not be more than 30 days after filing.
The IBBI has also called for a new yardstick to measure haircuts.
It suggested that haircuts not be looked at as the difference between the creditor’s claims and the actual amount realised but as the difference between what the company brings along when it enters IBC and the value realised.