‘Falling recovery, delay in resolution dent IBC’s success’

Contact Counsellor

‘Falling recovery, delay in resolution dent IBC’s success’

  • According to a report by CRISIL Rating, recovery rates have fallen from 43% to 32% between March 2019 and September 2023.
  • Also, average resolution time has increased from 324 to 653 days, surpassing the stipulated 330 days.
  • These have emerged as impediments to the success of the Insolvency and Bankruptcy Code (IBC).

Reasons Behind Challenges

  • Limited judicial bench strength
  • Delays in identifying and acknowledging defaults
  • Significant delays in the pre-IBC admission stage, reaching 650 days in fiscal 2022 from about 450 days in fiscal 2019, has suppressed recovery rates.
    • Delays have led to a reduction in asset values and sub-optimal recoveries.

Recent Amendments

  • To improve efficacy, new amendments in the past 12 months have been made to the IBC.
  • These include
    • Approval for the sale of assets/resolution plans on a segregated basis.
    • Increase in the number of National Company Law Tribunal benches to 16
    • Extension of timelines for filing claims.
  • Also, sector-specific amendments, provision for the audit of corporate debtors, and modifications in Form-G2 aim to improve the resolution process.

Recommendations for Improving IBC Effectiveness

  • As suggested by CRISIL Ratings, the IBC’s effectiveness can be increased using CDE approach
    • Capacity augmentation, Digitalisation and Expansion of pre-pack resolutions to large corporates.
  • Infrastructure improvements, such as expanding judge bench strength and digitising IBC platforms, can prevent value erosion due to time.

Achievements and Impact of IBC

  • Since its inception in 2016, IBC has improved India's credit culture by resolving stressed assets with better recovery rates compared to previous mechanisms.
  • IBC has resolved ₹3.16 lakh crore of debt in 808 cases over seven years.
  • On average, creditors have realised 32% of the admitted claims and 169% of the liquidation value.
  • IBC acts as a deterrent, leading to the settlement of over ₹9 lakh crore of filed debt before reaching IBC gates.

Prelims Takeaway

  • Insolvency and Bankruptcy Code (IBC)
  • Lok Adalats