Introduction
IBC being one of the most significate reforms that was brought in 2016 has helped India to improve its ease of doing business ranking given by the World Bank.
The parliamentary standing committee on finance chaired by Mr. Jayant Sinha, Lok Sabha MP, has reported that the lenders are taking haircuts upto the extent of 95% and more than 715 of the resolution process are pending for way more than the 180days. Such numbers unfortunately defeat the very objectives of the Insolvency and Bankruptcy Code, 2016 ('Code') i.e. timely resolution and maximization of assets.
There has been a huge speculation in revising the Code due to huge delays in resolutions, very low recovery rates as well as the rising cases of liquidation. This proves that the Code has deviated from its purpose of offering a fast and timely resolution path to stressed companies.
The aforesaid standing committee has suggested that the pre-pack scheme, which has already been offered to MSME's since 04.04.2021, should also be made available for larger corporations as an alternate to CIRP.
The Committee also felt that the design and implementation of the Code as it has evolved needs to be checked and revisited. The original aim and object need to be focused on while bringing new amendments in the Code.
However, the panel also applauded the Code for reducing the time period for resolution from 4.3 years in 2017 to 1.6% in 2020 which helped India get a better ranking in 'ease of doing business' ranking laid down by the World Bank.
The committee has emphasized that greater clarity is needed in order to strengthen creditors' rights through the given mechanism in the Code, most importantly by considering the disproportionate and unstable haircuts taken by the financial creditors over the years. There was also a suggestion to put a benchmark on the quantum of haircuts in line with the global standards.
The Committee also proposed a professional code for lenders who take over the affairs of the company during distress, which will keep a check on such lenders as the future of the company depends on the decisions of such lenders. The panel also suggested to introduce a single self-regulatory agency for insolvency professionals rather than having multiple insolvency professional agencies set up by the Institute of Chartered Accountants of India (ICAI), the Institute of Cost Accountants of India and the Institute of Company Secretaries of India who enrol and regulate their members.
The report also laid down ways to help home buyers who wish to initiate corporate insolvency proceedings against the corporate debtor (builder) but could not gather 99 other buyers. As per the IBC amendment that was laid down in 2018, a minimum of 100 homebuyers or 10% of the total flat purchasers were needed to initiate the corporate insolvency resolution process.
The panel suggested that the builder will be required by the rules to give extensive details of its other customers when one home buyer plans to file for corporate insolvency proceeding against the builder in the tribunal.
Introduction of pre-pack insolvency for larger corporations and fixation of benchmark on haircuts will surely increase the pace of the resolution of companies facing CIRP and maximise the value of the assets.