IBC has improved the recovery rate of stressed assets to 48% in two years from 26% in the pre-IBC era.
Insolvency and Bankruptcy Code in India has ascertained that the enforcement will take place if the stressed assets in a company surpass a limit. However, there can be a possibility of someone using wilful defaults for a lucrative haircut as well, but those cases are very rare. To make the insolvency process smoother, there is a need to increase the number of appointments of Judicial members, and the number of NCLT benches of the adjudicating authority, Deepak Bhawnani, CEO and Founder, Alea Consulting, told Samrat Sharma of Financial Express Online in an interview. Here are excerpts from the interview:
1) Has IBC been successful in reducing the stressed assets of the country?
According to a World Bank statement, IBC has improved the recovery rate of stressed assets to 48% in two years from 26% in the pre-IBC era. In view of proposed amendments, it is still early days for implementation figures to provide deeper analysis. We have examples like the Essar Steel insolvency where the Rs 50,000 crore-account timeline was extended from 270 days to 600 days. The implications of IBC proceedings have created a clear understanding that enforcement will take place and hence there are borrowers who will work with their creditors to avoid coming under the purview of IBC. So, there is a direct and indirect positive impact of IBC to help reduce stressed assets.
2) Can the lucrative haircut provoke somebody to become a wilful defaulter?There can be a possibility where there are chances of someone using wilful defaults for a lucrative haircut. But such a situation can only arise in case of extensive collusion, as creditor’s financial institutions determine IBC submission. Such a situation could also be very rare as cases reach IBC after a prolonged process of attempted recovery.
3) Are the number of cases of liquidation under IBC on the rise?
According to the economic survey released by IBBI in July 2019, of the total cases admitted 152 cases ended on appeal, review or settlement; 91 were withdrawn; 94 yielded resolutions and; 378 resulted in liquidation. 1,143 cases are currently undergoing the resolution process and 452 companies have filed for voluntary liquidation till 30 June 2018.
4) What are your recommendations to improve the IBC proceedings?
- There is a need to increase the number of appointments of Judicial members/experts.
- More NCLT benches of the adjudicating authority would enhance the process.
- Background checks in terms of conflict and integrity should be done for insolvency professionals, with timelines being set to complete proceedings
- Information Utilities (IU’s) play a crucial role in terms of providing transparent evidence of default. IBBI has the only registered IU, National eGovernance Services Limited. Data integrity and more IU’s should support the process.
- The community of creditors plays a critical role in the resolution process. Hence it becomes crucial for CoC to work dynamically with the insolvency professional to revive the company.