Amid concerns about a slowdown in the country’s insolvency resolution process, there are encouraging signs of greater legislative and regulatory commitment to impart momentum to it. Equally important is to improve the integrity of the whole system with sufficient checks and balances, and ensure, through a vigilant follow-up procedure, that the Insolvency and Bankruptcy Code’s (IBC, 2016) intended objectives of speedy revival of corporate debtors with minimal value erosion and reducing bad debt in the banking system, are satisfactorily met.
The latest move by the Insolvency Bankruptcy Board of India (IBBI) to enhance the disclosure requirements for prospective bidders under the Corporate Insolvency Resolution Process (CIRP) shows that the transparency requirement is also being paid attention to. According to a discussion paper floated by IBBI, the resolution applicant (buyer) will have to disclose beneficial-ownership in a specified format, giving details of all natural persons, who ultimately owns or controls it, together with the shareholding structure and jurisdiction of each intermediate entity.
Besides, they will have to submit an affidavit disclosing whether they are eligible for immunity—provided under Section 32A of the IBC—from prosecution for offences committed prior to the commencement of CIRP. If implemented, these norms will make indirect bids by promoters more difficult, by supplementing the Securities and Exchange Board of India-mandated disclosures for listed entities.
There are apprehensions among observers that some promoters might have used the facility and legitimacy provided by the IBC to “whitewash their liabilities”. Such instances, if real, are to the collective detriment of all stakeholders, except the perpetrators of such frauds. However, an investigation into the post-resolution management and performance of the firms could unravel the facts. Though a few complaints to this effect have been lodged with the National Company Law Tribunal, none has yet been judicially verified, or established.
What’s heartening is that there are parallel moves to make it easier for promoters trapped in insolvency for genuine business reasons to disentangle themselves from the mess and seek expeditious revival, while malafide activities are being put under greater regulatory oversight. The IBC Bill, likely to be approved by Parliament in the winter session, after an ongoing review by a select committee, is set to usher in a new creditor-initiated resolution mechanism.
This is essentially an out-of-the-court mechanism that will give a last opportunity for the promoter to be in control, and arrive at a mutually agreed formula with debtors, under the watch of an independent resolution professional (RP). Mature insolvency regimes have stellar examples of such a facility, which will help reduce the load on the judicial system. The Bill’s provisions for group and cross-border insolvency will further aid the evolution of India’s bankruptcy regime and its assimilation of global best practices.
Another pragmatic move is the administrative understanding reached between IBBI and the Directorate of Enforcement recently, under which in cases where the latter attaches properties of the corporate debtor under the Prevention of Money Laundering Act (PMLA), RPs would take steps to expedite release of assets for the benefit of insolvency resolution. If implemented in true spirit, this will practically resolve the vexed conflict that has arisen from the interplay of the two Acts—IBC and PMLA. For all these efforts to bear fruit, however, the entire insolvency ecosystem, comprising judicial, regulatory and professional spheres, will have to equip itself with requisite manpower, expertise, and, above all, a resolve to meet the resolution timelines set, without compromising on the IBC mandate.