Is IBC an Effective Resolution Tool?, Pg 10

• The Insolvency and Bankruptcy Code (IBC), 2016 was enacted to streamline corporate insolvency processes with a time-bound mechanism (330 days max).

  • As of 2024, ?3.89 lakh crore recovered with an average recovery rate of 32.8%, exceeding the average liquidation value.

  • IBC accounted for 48% of bank recoveries in FY 202324, per RBI data.

  • 93.4% of fair value of distressed assets has been realised through resolution plans.

  • Over 30,000 cases settled pre-admission, indicating a behavioural shift in borrowers.

  • NPAs fell from 11.2% (2018) to 2.8% (2024), partly due to IBC impact.

  Detailed Insights

  • Why IBC was Needed:

    • India lacked a unified insolvency law before 2016.

      • Previous recovery frameworks (DRTs, SARFAESI) were time-consuming and ineffective.

      • IBC shifted control from debtors to creditors, ensuring accountability and timely action.

    • Positive Impacts:

      • Significantly improved credit culture; defaults are no longer safe zones.

      • Encouraged pre-emptive settlements by defaulters.

      • Enhanced corporate governance more independent directors onboard.

    • Systemic Challenges:

      • NCLT delays hamper timely resolutions.

      • Legal framework lacks clarity on non-traditional assets like IP, tech continuity.

      • Bhushan Steel SC verdict re-opened a closed resolution, shaking trust in IBC finality.

    • Need for Reform:

      • Strengthen tribunal infrastructure.

      • Introduce pre-pack insolvency for quicker resolution, especially for MSMEs.

      • Clarify jurisprudence to protect bona fide commercial decisions post-resolution.

  Scientific/Technical Concepts Involved

  • Insolvency: A state where an entity is unable to repay debts on time.

  • Liquidation Value: The amount expected from selling the company's assets if it were to shut down.

  • Pre-Packaged Insolvency: A negotiated insolvency plan between creditors and debtors before formal NCLT proceedings.

Mains Mock Question:

Q. _The IBC has transformed Indias insolvency landscape but still faces implementation and legal predictability challenges. Critically examine_.