IBC resolution: House panel raises concerns over 'haircuts', asset valuation, Pg21

Key Highlights:

• Parliamentary panel highlights challenges hampering the Insolvency and Bankruptcy Code (IBC) despite its success in boosting creditor confidence and foreign investments.
• Key hurdles identified include delays due to inadequate judicial infrastructure, uncertainty in resolution plans due to judicial reversals, and lack of accountability among Resolution Professionals (RPs).
• The panel suggests adopting an enterprise-level price discovery mechanism and strengthening cross-border insolvency to improve the IBC.
• Concerns raised over 'haircuts' and asset valuation, citing a lack of transparency and accountability leading to potential distress sales.
• As of March 31, 2025, 1,194 companies have been resolved under IBC, with creditors realizing Rs 3.89 lakh crore against admitted claims of over Rs 11 lakh crore.

Detailed Insights:

• The IBC Amendment Bill, 2025, currently under review, aims to address these challenges and safeguard stakeholder interests through comprehensive reforms.
• Recovery rates under IBC are constrained by asset valuation based on liquidation potential rather than enterprise value, and a limited pool of resolution applicants.
• The committee recommends valuing assets based on enterprise value to better reflect the corporate debtor’s potential and reduce haircuts through expanded competitive bidding.
• Introduction of Standard Operating Procedures (SOPs) is advised to clearly define the roles of liquidators, registered valuers, audit trails, and post-resolution valuation reviews.
• Post-resolution, companies face challenges such as delays in obtaining clearances and difficulty in securing fresh financing due to being labeled as defaulters.
• The committee suggests establishing a transparent online mechanism for issuing 'no dues' certificates to resolved companies to facilitate a fresh start.
• The average overall recovery under the law is 32.8 per cent of the total admitted claims and 170.1 per cent of the liquidation value.

Key Concepts Involved:

• Insolvency and Bankruptcy Code (IBC): A law that consolidates and amends laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time-bound manner.
• Resolution Professional (RP): A professional who manages the insolvency resolution process of a company.
• Haircut: The difference between the amount a lender is owed and the actual amount it recovers through the resolution process.
• Cross-border Insolvency: Deals with cases where a debtor has assets and creditors in multiple countries.