Insolvency code: government reflects on next round of changes to insolvency and bankruptcy code
Senior officials from the Ministry of Finance and Commercial Affairs and regulator IBBI are drafting the next round of amendments to the Insolvency and Bankruptcy Code (IBC) to strengthen the resolution of toxic assets and close the loopholes in the bankruptcy code. system.
Ministry secretaries and other senior officials held two important meetings on September 21 and 28 to explore the “next frontier” of the five-year-old IBC, official sources told FE.
The turbulent talks followed a directive from Finance and Enterprise Affairs Minister Nirmala Sitharaman to officials at a meeting of the Financial Stability and Development Board (FSDC) last month to finalize details of the changes that would be needed to further strengthen the IBC regime, one of the sources said. The Reserve Bank of India and stock market regulator Sebi also wanted some IBC issues to be addressed quickly.
The move comes weeks after the Parliamentary Standing Committee on Finance warned that the IBC may have strayed from its original targets, due to excessive delay in resolution and large haircuts for lenders.
While the average recovery of toxic assets was in the order of 39% of creditors’ claims through March 2021, in some cases haircuts have reached 95%. This asymmetry must be reduced, say critics.
Of course, the recovery by the IBC is still far superior to that of other existing mechanisms, including Lok Adalats, DRT and the Sarfaesi Law.
To achieve the original goals of the IBC, Jayant Sinha, chairman of the parliamentary standing committee on finance, suggested that the rules and regulations be streamlined, possibly through another amendment to the IBC and strengthening the National Company Law Tribunal (NCLT) device. .
The most crucial reasons for the delay in resolution and erosion of asset values are bottlenecks in the NCLT system, Sinha told FE in August. No less than 13,170 insolvency cases involving claims of Rs 9.2 lakh crore are awaiting resolution before the NCLT. About 71% of cases have been pending for more than 180 days.
The House panel also pointed out the risks of procedural uncertainties resulting from unsolicited and late offers. Analysts say late bids are often submitted by ineligible promoters or their agents to delay the resolution process. The panel also suggested that a professional code of conduct be established for the powerful creditors committee, which decides all important issues in a resolution process.
To address these issues, the Insolvency and Bankruptcy Board of India (IBBI) has now stipulated that bidders are only allowed to amend resolution plans once. Likewise, he indicates that CoC members will have to abide by a code of conduct, aimed at preserving the integrity of the resolution process. They will also fall under the regulatory competence of the IBBI (and not sectoral watchdogs like RBI), which will initiate actions if they do not comply with the code, which will be implemented soon.
The regulator’s action came after a few cases in recent months have tested the spirit of the IBC. For example, in the case of Siva Industries Holding, the lenders agreed to a one-time settlement by its former promoter, who had offered only 6.5% of the total debt, and filed a withdrawal request with the NCLT. In the case of Videocon, the NCLT had pointed out that lenders were taking a discount of almost 96% and had exclaimed that Twin Star Technologies’ offer was very close to the liquidation value of the ailing firm, which wanted to be confidential.