Need Framework To Study Impact Of Insolvency Law: Corporate Affairs Secretary

Amid concerns in certain quarters that the insolvency law has led to more liquidations than resolutions of stressed assets, Corporate Affairs Secretary Rajesh Verma on Saturday pitched for having a framework to study the impact of the legislation.

Emphasising that the government and regulator IBBI have been constantly making course corrections to address any gaps in the Insolvency and Bankruptcy Code (IBC), he also said the law has brought in a cultural shift in the dynamics between lenders and borrowers as well as promoters and creditors.

The IBC, which came into force in 2016 and has undergone six amendments so far, provides for a time-bound and market-linked resolution of stressed assets.

"Some critics have observed that IBC has led to more liquidations than resolutions... There is presently no framework to track the outcome of insolvency and bankruptcy regime...it is crucial to continue to study the impact of the insolvency framework created by IBC and conduct a SWOT analysis to investigate (its) strengths and weaknesses," Verma said.

Speaking at the inaugural function of a two-day conference on IBC, he also noted that the World Bank Doing Business indicators that track the outcome of the IBC have been discontinued.

"The government and regulator IBBI have been constantly course correcting in responding to any gap in the Code... While we are working with agility as regards implementing the provisions of the Code... it is important that we have a rigorous and evidence-based research to public policy," Verma said.

IBBI Chairperson Ravi Mital said a large number of stressed projects are going into liquidation since they come into the IBC process very late.

The Insolvency and Bankruptcy Board of India (IBBI) is a key institution in implementing the IBC.

While noting that regulations are also tilted towards liquidation, he said the regulator will examine the matter.

"In a month or two, we will examine it on how to encourage resolution more than liquidation. The basic essence of IBC is to resolve a project as a going concern," he added.

Stressed assets should come into the IBC process as early as possible and liquidation should be the last resort, Mital said.

Minister of State for Corporate Affairs Rao Inderjit Singh said streamlining the CIRP (Corporate Insolvency Resolution Process) and liquidation process will further help in consolidating the progress made to secure gains to the economy.

According to him, the IBC has opened up unlimited possibilities of resolutions and the proposed cross border insolvency framework will redefine India's relationship with the rest of the world.

"The framework will address all applications such as seeking recognition of foreign insolvency proceedings and applications from foreign jurisdictions seeking cooperation in Indian jurisdiction," he noted.

They were speaking at the International Research Conference on Insolvency and Bankruptcy organised by the IBBI and IIM Ahmedabad.

The IBC comes under the corporate affairs ministry.