It is time for a full-scale overhaul of the Insolvency and Bankruptcy Code

The Insolvency and Bankruptcy Code came into effect in 2016 with the following objectives: Maximise the value of debtor’s assets; promote and encourage entrepreneurship; ensure timely and effective resolution of IBC cases; balance the interests of all stakeholders, including creditors, debtors, and staff; facilitate the promotion of a competitive market and economy; and provide for a framework to deal with cross-border insolvency cases. The Financial Stability Report released by the Reserve Bank of India on December 28, 2023 summarises the Corporate Insolvency Process : “Since the inception of the IBC, a total of 2,808 Corporate Debtors have been rescued and 2,249 CDs have been referred for liquidation till September 2023. The FSR of April 2023 says ‘as of March 2023, there were 25,107 applications for CIRPs of corporate debts worth ₹8.81 lakh crore, disposed of before admission to the insolvency process.’ Why? According to the 32nd report of the Parliamentary Standing Committee on Finance, submitted to Parliament on August 3, 2021, “The Committee found that the low recovery rates with haircuts as much as 95% and the delay in resolution process with more than 71% cases pending more than 180 days clearly points towards a deviation from the original objective of the code intended by the Parliament.” “The Committee found that there are numerous issues with regard to Resolution Professionals for which two regulators IPA and IBBI have taken disciplinary action on 123 Insolvency Professionals out of 203 inspections conducted till date.” So, 60% of the IPs inspected were found to be indulging in malpractices.