We can’t let IBC lose its sheen: FM Sitharaman | The Financial Express

We can’t let IBC lose its sheen: FM Sitharaman

The minister highlighted the tepid response to the pre-packaged scheme for MSMEs, under which only the debtor gets to trigger its own bankruptcy process.

We can’t let IBC lose its sheen: FM Sitharaman
In such a situation, early detection of stress and its timely resolution would be of help to these companies.

Finance and corporate affairs minister Nirmala Sitharaman on Saturday pledged “whatever it takes” to restore the glory of the Insolvency and Bankruptcy Code (IBC), making it clear in no uncertain terms that “we can’t afford to let the IBC lose its sheen”.

Speaking on the occasion of the sixth foundation day of the Insolvency and Bankruptcy Board of India (IBBI) in Delhi, the minister stressed that delay in either the detection or resolution of stress in a company is the first “big hurdle” in a robust insolvency ecosystem. “We can’t afford to keep early warnings unnoticed,” she said.

The minister also asserted that inflation is at a “manageable level” and the central bank on Friday sent a “positive signal” to the market. More than 70% of the FPI (foreign portfolio investor) outflows until July have returned by September, the minister said. Sitharaman called on resolution professionals to use their skills and ability to ensure maximisation of the stressed asset value.

“I can’t afford to say 95% of the haircut is the best resolution I can give you (creditors),” she said. “Can this be the feature of the IBC or the resolution professional’s ability?” she asked.

The minister dwelt upon the massive disruptions caused by external headwinds in the post-pandemic world, which would invariably affect domestic companies — large and small — as well, even though the magnitude of the impact would vary.

In such a situation, early detection of stress and its timely resolution would be of help to these companies.

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The minister highlighted the tepid response to the pre-packaged scheme for MSMEs, under which only the debtor gets to trigger its own bankruptcy process.

Approved in July last year, it was supposed to yield faster resolution, cost less and reduce litigation often triggered by defaulting promoters to retain control of their firms. Only two firms so far have reportedly applied for this scheme. “I still find that the wings that are so necessary for the bird (pre-packaged scheme) to fly are still not there. The scheme has still not taken off (at the desired manner),” she said.

“I want all, including myself, to remain conscious of the fact that we can’t afford to let the IBC lose its sheen. Whatever it takes for all of us to keep it as sparkling as it was when it was brought in (should be done),” she said.

Analysts have mostly blamed the bottlenecks at the NCLT system (which contributed to late admission of insolvency cases) and the delay in the resolution of stress (often due to litigations) for the poor recovery. About 61% of stressed firms that are undergoing resolution have exceeded the stipulated 270-day limit.

Speaking at the same event, NCLT president chief justice (retd) Ramalingam Sudhakar said the tribunal has disposed of insolvency cases involving an amount of nearly `10.5 lakh crore, excluding liquidation and certain other matters. The amount pertains to cases filed by financial and operational creditors as well as those done voluntarily for resolution under the IBC. He said IBBI has been trying to reduce delays in the resolution process.

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