Insolvency and Bankruptcy Code
- In 2016, the Insolvency and Bankruptcy Code was passed to tackle the mounting bad debts and to favour the creditor during the resolution process. While the IBC’s performance has been relatively better than the other recovery mechanisms, it suffers from similar systemic issues.
- When a company becomes bankrupt, it stops making loan payments, and the creditor tries to collect the debt in various ways.
The recovery procedure is necessary for two reasons: first, to recover the highest amount feasible from the defaulter, and second, to do it as quickly as possible so that the funds can be used to issue new credit.
- The former recovery systems, such as SARFAESI, Lok Adalats, and Debt Recovery Tribunals, had issues with claim recovery and excessive delays in resolving problematic assets.
- While the IBC has performed better than the other recovery methods, it is plagued by the same structural problems.
For example, 55 percent of the 2,600 cases closed by December 2021 ended in liquidation, while just 16 percent were completed with lender-approved resolution solutions. There are sometimes delays in the resolution process.
- In FY22, it took an average of nearly 700 days to complete a settlement process, compared to the 330-day limit.
Furthermore, the amount to be realised via the resolution procedure in the fourth quarter of FY22 was less than the asset liquidation value.
- The most serious problem is delays, which are largely attributable to tribunal capacity. The NCLT’s (National Company Law Tribunal) operation during the COVID-19 outbreak was a setback for the IBC.
- The delay in admissions isn’t given enough attention. For almost a year, several cases have been awaiting admittance.
Source: The Hindu