IBBI’s (Insolvency & Bankruptcy Board of India) latest data shows that Corporate Insolvency Resolution Process (CIRP), a key mechanism under the IBC, has handled 8,002 cases, of which 1,068 concluded with approved resolution plans, as of September 2024.
These plans enabled creditors to realise Rs 3.55 lakh crore, achieving 161.11 per cent of the liquidation value. However, 2,630 cases ended in liquidation.
The Code’s impact on the banking sector is equally noteworthy. Gross NPAs of scheduled commercial banks have dropped sharply from 11.2 per cent in March 2018 to 2.8 per cent in March 2024. Recently speaking at an event, Reserve Bank of India Deputy Governor Swaminathan J. attributed much of this success to the IBC, stating, “The gross NPAs of the scheduled commercial banks have declined. A good part of that reduction is attributable to resolution processes enabled under IBC.” However, issues like delays in tribunal proceedings, misaligned stakeholder incentives, and high haircuts, averaging 69 per cent, demand the need for continuous improvement.
2024 witnessed reforms aimed at streamlining processes, enhancing recoveries, and ensuring long-term sustainability. ETCFO brings forth a closer round up of these measures:
Flexibility to Liquidation Framework
The liquidation framework underwent amendments this year. Provisions for reducing reserve prices with the approval of the Stakeholders’ Consultation Committee (SCC) have been introduced, allowing for more flexibility in asset disposal. Mandatory SCC meetings ensure greater stakeholder involvement in key decisions.
Furthermore, the emphasis on consultation on key decisions such as legal proceedings, asset sales, and early dissolution ensures greater stakeholder participation and minimises potential disputes.
Personal Guarantor Insolvency
To further harmonise the insolvency framework, regulations governing personal guarantors to corporate debtors were amended.
The removal of restrictions on insolvency professionals serving as both corporate and personal guarantor resolution professionals is to foster better coordination between processes and enhance efficiency.
Moreover, mandatory creditor meetings in personal guarantor cases address complexities and ensure collaborative resolutions, leading to more equitable outcomes.
Strengthening the Insolvency Professionals Framework
These amendments allow insolvency professionals to resign from assignments subject to approvals, providing greater flexibility in their professional engagements. Added to that, insolvency professional entities are now permitted to engage their partners or directors for certain tasks, enhancing resource utilisation. Finally, the validity of Authorisation for Assignment (AFA) for insolvency professionals has been relaxed.
Enhancing Creditor Representation
To enhance creditor representation, the introduction of interim representatives for creditor classes, such as homebuyers, ensures a stronger voice and more efficient resolution processes. These interim representatives, appointed while awaiting approval for an authorised representative by the Adjudicating Authority, hold the same rights and duties as authorised representatives in the committee of creditors, as per IBBI.
Improving Transparency and Efficiency
Several measures were introduced to improve transparency and efficiency. These include the implementation of mandatory separate bank accounts for real estate projects.
Regular monthly meetings of the Committee of Creditors (CoC) are now mandated, as per IBBI’s amendments.
Streamlined voting procedures have been implemented, making the resolution process more efficient. Increased oversight of resolution costs ensures that resources are utilised judiciously. Furthermore, the disclosure of valuation methodologies and fair value in the information memorandum enhances transparency and accountability for all stakeholders. Flexibility in inviting resolution plans for real estate projects and the establishment of monitoring committees aim to address sector-specific needs while ensuring seamless implementation of resolution plans.
Integrated Technology Platform for IBC
As part of the Union Budget 2024 announcement, the government introduced the creation of an Integrated Technology Platform. This platform leverages artificial intelligence and blockchain technology to predict potential defaults, track preferential transactions, and automate routine tasks. By providing a centralised repository of insolvency cases, claims, and resolutions, this platform aims to enhance transparency, reduce delays, and improve overall oversight.
To enhance the Insolvency Resolution process and ensure effective implementation of the Insolvency and Bankruptcy Code, 2016 (IBC), the Government has introduced six amendments to the IBC. Additionally, the Insolvency and Bankruptcy Board of India (IBBI) has implemented over 100 regulatory amendments since the inception of the IBC, responding to market needs in order to streamline procedures and maximise the value of Corporate Debtor assets, according to the Ministry of Corporate Affairs.
