IBC

 Brief overview of IBC 

The era before Insolvency and Bankruptcy Code ("Code") in India had various disseminated laws relating to insolvency and bankruptcy which caused inadequate and ineffective results with undue delays, like for example, Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, Companies Act, 1956 for liquidation and winding up of the company, Recovery of Debts Due to Banks and Financial Institutions Act, 1993 for debt recovery by banks and financial institutions, Corporate Debt Restructuring, etc under RBI guidelines.

The Board for Industrial and Financial Reconstruction under Sick Industrial Companies (Special Provisions) Act, 1985 which was set up for specific purpose to check the industrial sickness sadly also failed to address the issue, since defaulters escaped recovery action by lenders.

Ineffective implementation, and time-consuming procedure in the aforementioned laws made the Bankruptcy Law Reform Committee draft introduce Insolvency and Bankruptcy Law which eventually led to the enactment of the Code in 2016 which was seen as a crucial moment for the Indian economy as it introduced a modern framework to deal with the insolvency of individuals and corporate entities.

Under the Code, the Parliament had devised a method for permitting the financial and other creditors of a company, to seek resolution of a company (corporate debtor) by engaging independent professional (resolution professionals) to take charge of the company from the board of directors, when the company had defaulted in paying its debts and whilst keeping the company as a going concern.

The Code ushered a concept of creditor in control, as against debtor in control regime which existed earlier and with approving power on critical issues given to the Committee of Creditors.

For the corporate debtor, the threat of a resolution process, shifting control away from the promoters is real and is serving as an effective deterrent. The debtors are encouraged to settle default with the creditors at the earliest, preferably before the process under the Code is initiated.

Many banks in India who had been struggling with the mounting non-performing loans, the Code possibly gave them a ray of hope to finally find a way to recover their claims, if not in full, at least a substantial part of it.

India made one of the most impressive improvements in the resolving insolvency parameter of the World Banks' Ease of Doing Business Report for the year 2019-2020. This is an important recognition for India and the Code, somewhere needs a show of appreciation which has seemed to be an effective tool for creditors to realize their dues in a significantly reduced timeframe compared to earlier insolvency regime.

Starting from the first resolution, that of Synergy Dooray to complicated and protracted resolutions/litigations of some of the large companies such as Bhushan Steel and Essar Steel, the Code has been successful in passing economic legislation test as also held by the Supreme Court in its various judicial pronouncements.

It has now been little over five years from the enactment of the Code and this journey had to go through several challenges in terms of frequent amendments made to the Code, though the amendments witnessed a lot of criticism, however if one has to look at the positive side it would be that the Government came up with rapid solutions so as to swiftly be able to address the glitches.

One such example of being receptive to problems was when the Government, recently introduced the pre-pack insolvency concept in India which allows companies to decide a plan and identify a buyer ahead of the company going into insolvency. Although this approach has been introduced only for MSME's in India, possibly in coming few years this can be used for all corporate debtors.