IBC has been revolutionary in many ways and is a formidable instrument for stress resolution.
And despite the room for improvement, the overall effectiveness of IBC in the distress space is unmatched, notes Saloni Kothari.
It has been seven years since the Insolvency and Bankruptcy Code (IBC) came in force as a big-ticket reform.
While there is scope for improvement, the IBC environment is continuously evolving.
A key intent is to attain value maximisation coupled with early resolution for the stakeholders of distressed entities.
In this regard there are certain areas that, if worked upon, would lead to a robust and mature IBC ecosystem.
Much discussed since the very first year of the IBC, timely support from the judicial system is now the need of the hour.
Increasing the number of Benches, coupled with the relevant selection of members for the National Company Law Tribunal, would prove highly beneficial.
Currently, one deterrent to the IBC process for stakeholders and investors is the threat of prolonged litigation and the resultant depreciation of value of the underlying assets of corporate debtors.
Very often, despite the law being established and further backed up by judicial precedents, cases remain pending for months and even years on end, leading to overall delays in all aspects such as admissions, plan approvals, liquidation, dissolution/closure and avoidance matters.
Many a time frivolous cases cause significant hindrances and dismissing them early would further ease delays.
It is thus imperative that the litigation cholesterol be lessened for overall traction in IBC.
Government agencies supporting and upholding the IBC would also go a long way in hastening the processes.
Accepting the letter and spirit of Section 238 of the IBC [overriding provision] would help ease out the conduct of the processes and lead to less litigation.
Digitisation and introduction of technology into the IBC environment would go a long way in making it self-sustaining.
Several stages of the processes can be handled with minimum human interface and the Insolvency and Bankruptcy Board of India has made a recommendation for the same.
Another factor is the Committee of Creditors (CoC) and Stakeholders Consultation Committee (SCC) taking swift decisions.
This can be done by ensuring that the individuals on CoC and SCC are those who not only can add value to the process but also apply their sectoral knowledge and experience.
The pertinence of the CoC's and SCC's decisions cannot be stressed enough considering the Supreme Court has time and again placed the commercial wisdom of the stakeholders as paramount in the IBC processes.
The role of Insolvency Professionals (IPs) and their support entities along with the legal fraternity is also key.
The IPs are crucial to the IBC process and their selection must be undertaken with great care.
Sectoral knowledge combined with experienced and sophisticated teams is the need of the hour as the practice is getting commoditised with preference being given to the lowest bidder (Level 1) than better suited candidates.
This is not cost-effective in the long run.
Provision of interim finance to a deserving corporate debtor would also go a long way in resurrecting distressed entities and making them more valuable to potential investors.
The introduction of cross-border insolvency would also go a long way in strengthening the rights of creditors and opting for IBC as an effective recovery mechanism.
To avoid delays or failures in the sale process due to defaulting investors, IPs and CoCs must conduct thorough diligence of the incoming investors and have a watertight feasibility and viability check carried out.
Perhaps, a predefined working mechanism for plan implementation and stricter measures for defaults on approved plans after the demission of the IP and closure of the Corporate Insolvency Resolution Process can be brought in to ring-fence stakeholders and deter non-serious buyers from participating.
IBC has been revolutionary in many ways and is a formidable instrument for stress resolution.
And despite the room for improvement, the overall effectiveness of IBC in the distress space is unmatched.
Saloni Kothari is Group General Counsel, BDO (India)
Feature Presentation: Aslam Hunani/Rediff.com
