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The Hindu
2 hours ago
- Business
- The Hindu
Is IBC an effective resolution tool?
The story so far: More than eight years have passed since the enactment of India's Insolvency and Bankruptcy Code (IBC). According to data from the Insolvency and Bankruptcy Board of India (IBBI), creditors have realised ₹3.89 lakh crore under the framework, with a recovery rate of over 32.8% against admitted claims. Why was the IBC enacted? India enacted the IBC, its first comprehensive bankruptcy law, in 2016 to improve the overall corporate insolvency resolution process. Shifting control from debtors to creditors, the IBC introduced a time-bound resolution mechanism to streamline bankruptcy proceedings, reduce judicial delays, and improve creditor recoveries. According to current provisions, a maximum timeline of 330 days is allowed to find a resolution for a company admitted into the insolvency resolution process. Otherwise, the company goes into liquidation. So far, the Code has rescued 1,194 companies through resolution plans. Is IBC a preferred route for debt recovery? As per the Reserve Bank of India report on Trend and Progress of Banking in India released in December 2024, the IBC emerged as the dominant recovery route, accounting for 48% of all recoveries made by banks followed by the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act (32%), Debt Recovery Tribunals (17%), and Lok Adalats (3%) in the Financial Year 2023-24. The realisation under IBC is more than 170.1% as against the liquidation value. Resolution plans, on average, are yielding 93.41% of the fair value of the Corporate Debtors (CDs), IBBI said. Further, 1,276 cases have been settled through appeal, review, or settlement, and 1,154 cases have been withdrawn under section 12A. The Code has referred 2,758 companies for liquidation, as per IBBI data. Nearly 10 companies are being resolved against five going into liquidation. Has IBC been an effective recovery mechanism? Akshat Khetan, Founder, AU Corporate Advisory and Legal Services, pointed out that IBC has changed the underlying credit culture. As the Supreme Court once observed, 'the defaulter's paradise is lost' and the Code has created a credible threat that ensures timely repayment. On the recovery rate of 32.8%, Mr. Khetan pointed out that it must be interpreted in light of the distressed nature of the assets that come into the IBC process, often after years of erosion. As the National Company Law Appellate Tribunal has rightly remarked in one of its rulings, 'IBC is not a recovery mechanism; it is a resolution framework.' Compared to legacy systems, where recovery rates were often below 20% with timelines extending into decades, a 32.8% realisation is a leap forward, he said. Mr. Khetan also stated that the statistic does not capture qualitative gains, such as job preservation, improved enterprise value, and restored investor confidence. In a framework designed to balance resolution over liquidation, the broader economic impact of IBC far outweighs numerical recovery alone, he said. The provisions of the IBC have prompted debtors to take early action in distress situations, marking a shift in their behaviour. National Company Law Tribunal (NCLT) data show that 30,310 cases were settled prior to admission, covering underlying defaults worth ₹13.78 lakh crore till December 2024. A study by the Indian Institute of Management, Bangalore, submitted to IBBI, said IBC has injected discipline in the credit allocation process and has prompted borrowers to adhere to stipulated payment schedules. The gross non-performing assets of the scheduled commercial banks have declined from a peak of 11.2% in March 2018 to 2.8% in March 2024. A part of that reduction is attributable to resolution processes enabled under IBC, it said. The study also indicated a 3% reduction in the cost of debt for distressed firms post-IBC, compared to non-distressed firms , indicating an improved credit environment for distressed firms. The IBC has had a positive impact on corporate governance, reflected in the increased proportion of independent directors on the boards of companies resolved under the Code. What are the major challenges? In a recent report, India Ratings and Research said that judicial delays and post-resolution uncertainties continue to affect confidence in the IBC framework. Even when resolution applicants are ready and the Committee of Creditors has granted approval, delays at the NCLT continue to push recovery timelines. In several cases, such delays result in extended litigation or failed implementation, increasing the risk of liquidation for a viable asset that requires timely execution, it said. The future insolvencies also raise questions about the Code's readiness to handle non-traditional enterprise defaults. While the IBC is legally broad enough to accommodate various resolution strategies, key commercial elements such as intellectual property valuation, treatment of employee dues, and tech continuity require a clearer treatment under the framework to make it future-ready, India Ratings said. To enhance its effectiveness, India must invest in strengthening tribunal infrastructure, allow for pre-packaged insolvency, and establish jurisprudential guardrails to protect bona fide commercial decisions from post-resolution uncertainty, Mr. Khetan said. While challenges persist, including process delays and recovery rates below expectations, the Code's foundational structure remains sound. As implementation matures and jurisprudence evolves, the IBC is well-positioned to overcome these hurdles and fully realise its transformative potential in India's financial ecosystem, IBBI Chairman Ravi Mital said in the recent quarterly newsletter. Does the SC verdict on Bhushan Steel pose a challenge to IBC? The recent developments in the Bhushan Power and Steel Ltd. case have reignited concerns around the finality of resolution outcomes and the predictability of the framework. While the decision upholds compliance standards, its timing and implications highlight the need for judicial clarity and faster adjudication to sustain investor confidence in the process in the long term, India Ratings said. By questioning a transaction that had been closed and operational for years, it risks unsettling the core principle of commercial certainty. If resolution applicants fear judicial reversals even after significant investment, they may hesitate to bid, undermining the IBC's very purpose. The Bhushan verdict thus underscores the need for legal sanctity once a resolution plan is approved and implemented, Mr. Khetan said. The IBC is not merely a piece of economic legislation, it is the backbone of India's credit ecosystem. Its future lies in striking a fine balance between judicial oversight and economic pragmatism. As India aspires to become a $5 trillion economy, robust and predictable insolvency mechanisms are indispensable. The Code must remain nimble, continually evolving to meet emerging realities while ensuring that commercial wisdom is not second-guessed endlessly, he said. Almost 78% of the ongoing Corporate Insolvency Resolution Process (CIRP) cases have exceeded 270 days, post-admission by the NCLT, as on March 31, 2025, ratings agency ICRA said. A sustained momentum would be needed to minimise haircuts for lenders, which remain high at 67%, it said. Nevertheless, some of the recent judgments reinforce the need for timely and transparent resolution, thereby putting greater onus on the Committee of Creditors (CoC) and NCLT. However, such rulings may also impact investor confidence in stressed assets setting precedents that the decision made by the CoC and the NCLT may be challenged and overturned by the judicial system, thus impacting the effectiveness of the resolution process, ICRA said.
Time of India
3 days ago
- Business
- Time of India
IBBI notifies amendments to streamline corporate insolvency process
The IBBI has notified amendments to the regulations governing corporate insolvency , aiming to streamline procedures, protect creditor interests, and encourage greater investor participation in resolution processes. The Insolvency and Bankruptcy Board of India (IBBI) notified the Insolvency Resolution Process for Corporate Persons Fourth Amendment regulations, 2025 on May 26, according to a release. Among the significant change introduced is a provision for allowing resolution professionals with the Committee of Creditor's (CoC) approval, to invite expressions of interest not only for the entire corporate debtor but also for individual assets or a combination of both. By enabling concurrent invitations, the resolution process can reduce timelines, prevent value erosion in viable segments, and encourage broader investor participation, IBBI said. The regulations also revise the framework for payments under resolution plans executed in stages. In such cases, financial creditors who did not support the resolution plan will now receive payments at least on a pro rata basis and ahead of those who voted in favour. Live Events The Board said this approach balances the legitimate rights of dissenting creditors with the practical constraints of phased implementation. In another notable amendment, the CoC has been empowered to direct resolution professionals to invite the interim finance providers to attend its meetings as observers without voting rights. As per IBBI, this measure is aimed to provide interim finance providers with a better understanding of the corporate debtor's operational status, thereby enabling them to make well-informed decisions regarding funding requirements. The amended norms also mandate the resolution professionals to present all received plans, including non-compliant ones to the CoC along with relevant details, it said. This provision ensures that the CoC has access to comprehensive information for decision-making, which may lead to more informed choices and ultimately contribute to a more transparent and effective resolution process, IBBI added.
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Business Standard
7 days ago
- Business
- Business Standard
IBC drives major behavioural shift in corporate credit culture: IIM-B study
The Insolvency and Bankruptcy Code has reshaped India's credit culture by instilling financial discipline among borrowers and strengthening corporate governance practices, according to a research study conducted by the Indian Institute of Management, Bangalore. The study is based on the comprehensive draws on a wide dataset covering corporate insolvency resolution proceedings sourced from the Insolvency and Bankruptcy Board of India for the period 20172023, financial data from CMIE Prowess from 2010 to 2024, and RBI data on non-performing assets over the same period. The study found that the IBC led to a sharp improvement in credit discipline, with a notable decline in overdue loan accounts and quicker repayment behaviour. The proportion of loans shifting from 'Overdue' to 'Normal' steadily increased post-IBC implementation, and the average duration accounts stayed in the 'Overdue' category shrank dramatically from as much as 248-344 days to as little as 30-87 days. Regarding the cost of debt, the study highlights a 3 per cent reduction in borrowing costs for distressed firms post-IBC, relative to non-distressed firms, suggesting an improved credit environment for financially stressed entities. On the governance front, the IBC also contributed to higher corporate governance standards, as evidenced by a rise in the proportion of independent directors on boards of resolved firms, it said. The average increase was 2.84 per cent, with a 2.52 per cent jump among highly distressed companies. Further, the study reported a marginal increase of 0.04 per cent in research and development intensity post-resolution, indicating a gradual move toward long-term value creation, it added. This study reaffirms that the Insolvency and Bankruptcy Code (IBC) has not only strengthened the legal framework for debt resolution in India but also catalysed meaningful behavioural changes among both borrowers and lenders, thereby fostering a more resilient, responsive, and accountable financial ecosystem. (Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)
Mint
29-05-2025
- Business
- Mint
Insolvency board allows more flexibility in asset sale of bankrupt businesses
New Delhi: The Insolvency and Bankruptcy Board of India (IBBI) has allowed administrators of bankrupt companies to sell these entities either as a whole or their assets individually, in a move that gives a great deal of flexibility in debt resolution. While amending the regulations, IBBI said this has to be done with the approval of creditors to the company. Amendments to the 2016 corporate insolvency resolution regulations published on Wednesday said the professional representative of creditors running the bankrupt business may, with the approval of creditors, invite debt resolution plans for the corporate debtor as a whole, or bids for sale of one or more of its assets or for both. That implies creditors need not waste time by first calling for bids for a company as a whole and if no investor shows interest, then proceed for asset sale. The amendments also allowed the resolution professional to invite those who provide interim finance to the distressed company during the bankruptcy proceedings to attend the meetings of creditors as observers without voting rights. Creditors run the bankrupt enterprise through the resolution professionals and decide the fate of the company by voting. The amendments have opened a new dimension in the insolvency resolution process, said Anoop Rawat, partner (insolvency and bankruptcy) at law firm Shardul Amarchand Mangaldas & Co. 'IBBI has allowed piecemeal resolution which shall enable committee of creditors (CoC) to find asset-wise resolution where resolving the corporate debtor as a whole may look cumbersome, uncertain or time consuming,' said Rawat. IBBI has been streamlining the process of debt resolution in order to improve the chances of rescuing the company and to maximize creditors' realization of their dues. Anjali Jain, partner at Areness Law, said the regulation's amendment is in sync with the practical issues faced by interim financiers as they would now be able to oversee the utilization of interim funds and hence financiers would be incentivised to extend facilities. The amended regulation, however, explicitly says interim finance providers will not have voting rights, a dampener for such financiers. Jain said the flexible resolution approach is laudable as various exit points are statutorily incorporated. This would ensure value maximization of large entities where a diversified portfolio poses challenge to potential applicants who wish to bid for one or multiple assets, but not for the entire business, added Jain. Over the years, the outcome of debt resolution under the Insolvency and Bankruptcy Code (IBC) has improved. With the government filling vacancies, the National Company Law Tribunal (NCLT) is also working at near full strength. However, extensive litigation among shareholders, creditors and multiple potential investors often complicates the process of bankruptcy resolution. Data from NCLT showed creditors stand to recover over ₹ 67,000 crore from 284 cases of bankruptcy resolution achieved in FY25, a 42% increase compared to the amount recoverable from the turnaround of 275 companies achieved in the same period a year ago, Mint reported on 15 May.
Time of India
28-05-2025
- Business
- Time of India
Insolvency framework amended to simplify compliance
NEW DELHI: The bankruptcy regulator has amended the framework for reporting the corporate insolvency resolution process ( CIRP ) to ease compliance burden without undermining effective oversight, according to a circular. Under the revised reporting framework, the existing nine forms will be compressed into five by removing duplication, streamlining data requirements and leveraging technology for auto-population of information, the Insolvency and Bankruptcy Board of India ( IBBI ) said in the circular dated May 26. The regulator has introduced a standardised monthly reporting cycle, replacing the current system of multiple event-based due dates during the month, it said. by Taboola by Taboola Sponsored Links Sponsored Links Promoted Links Promoted Links You May Like Obehag i dina fingrar? Vi inbjuder dig att ge detta ett försök. Arthorol Pro Få erbjudande Undo The changes have been incorporated by amending the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. Filings on debt resolution proceedings have to be made on or before the tenth day of the subsequent month, except where the resolution plan or liquidation has been cleared by the tribunal, which has to be reported within seven days. The new forms, the regulator said, will be made available on its website from June 1. No penalty will be imposed for delayed filing of forms during the September quarter. The idea is to give some time to insolvency professionals to get acquainted with the new forms and to address any technical issues, it said. Live Events The forms have to be filed on an electronic platform that will be hosted on the regulator's website. The IBBI has been taking steps to expedite the resolution process and reduce compliance requirements. India Ratings said in a report that the procedural changes introduced this year "aim to improve stakeholder representation, simplify compliance, and enhance transparency in the resolution process". The latest data released by the regulator showed that resolutions outpaced liquidations in 2024-25. The March quarter saw the highest resolution-to-liquidation ratio since the insolvency law's inception in 2016, ICRA said in a report.
