The Centre has asked states to offer inputs on ways to boost the ecosystem for insolvency resolution, an official source told FE. Top officials of various state governments are expected to submit their suggestions to strengthen the regulations under the Insolvency and Bankruptcy Code (IBC). Although the Centre has brought in the IBC, insolvency is in the concurrent list of subjects and states play a role in implementation of various regulations under it. So, greater participation from the states in the process of improving the insolvency ecosystem is critical. It is also part of the Centre’s cooperative federalism initiative, said the source. Already, the government is considering bringing in regulations in phases to deal with individual bankruptcy under the overarching law — IBC. It could first come up with insolvency regulations for individuals who are into businesses. Individuals giving personal guarantees for corporate loans and an overwhelming chunk of micro and small and medium enterprises (MSMEs) that are basically proprietorship and partnership firms will be covered by these regulations. The next phase of regulations would be to deal with personal debt.
Meanwhile, the NITI Aayog has called a meeting of key stakeholders on August 30, mainly to discuss individual insolvency. Deliberations under the NITI Aayog are expected to complement efforts by the Insolvency and Bankruptcy Board of India in firming up the regulations under the IBC. While the IBC provides for individual insolvency, regulations are still in the works. So far, regulations have been notified for insolvency cases involving companies and more than 150 cases have been admitted by the National Company Law Tribunal.
The IBC is aimed at turnaround of stressed assets or, in case of liquidation, their quick monetisation. Secured creditors, including banks, are placed third in the preference order in case of any liquidation to receive the proceeds, after meeting the cost of resolution and workers’ dues. The IBC, which has completed a year now, was brought to focus by the government in May 2016. Then through the banking regulation (amendment) ordinance 2017, the Centre authorised the Reserve Bank of India to direct banking companies to resolve specific cases of bad loans by initiating resolution process under the new insolvency law, where required. The central bank can now give directions even on specific cases of defaults, a practice it used to avoid earlier.
