Delay in Resolutions under IBC | 13 May 2019

A number of hurdles have delayed the debt resolution at Essar Steel India Ltd. under the Insolvency and Bankruptcy Code (IBC).

Resolution Process under IBC

• The IBC requires a corporate insolvency resolution process (CIRP) to be completed in 180 days, which can be extended by another 90 days to a maximum of 270 days.
• Status: As on 31^st March 2019, out of total 1143 cases that were undergoing resolution under the IBC, a total of 548 cases exceeded the 180-day deadline.

Reasons Behind Delay in the Resolution Process

• Burdening the NCLT and the appellate tribunals with matters relating to the Companies Act and Competition Act along with the IBC is probably one reason.
• Limited number of Information Utilities (IUs) in the ecosystem. The IUs provide access to credible and transparent evidence of default, which helps in expediting the process of ascertaining a default for initiating the resolution process. As of now, there is only one information utility – National eGovernance Services Ltd – which was registered with Insolvency and Bankruptcy Board of India (IBBI) in September 2017.
• Lack of appropriate bids to takeover companies, differences among the lenders, legal challenges posed by existing promoters and operational creditors are among the other reasons behind delay in resolutions under the Insolvency and Bankruptcy Code (IBC).

IBC vs DRT/SARFAESI

Financial Creditors have witnessed a recovery rate of 43% under IBC resolution process. In the existing regime of DRT/SARFAESI (Debt Recovery Tribunal/Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest), banks recover less than 20 % of the stuck loans with significant delays.

Suggestions

• Digitisation of the NCLT platform, proactive training/on-boarding of judges, lawyers and other intermediaries will help in the effective implementation of the code.
• Pre-packed insolvency arrangements that is allowing the sale of a business (subject to the approval of a majority of the creditors) as a going concern prior to the appointment of an administrator or insolvency professional, can be considered.