Friends, while going through the newspaper one item which caught my eye was “ Government tells Banks to speed up IBC resolutions”. To date, I have not heard about what are IBC resolutions. This led to research on this subject.
What is IBC?
IBC means The Insolvency and Bankruptcy Code (IBC), which is a comprehensive legal framework in India that provides a time-bound process for the resolution of insolvency for individuals, companies, and the other entities. The IBC allows for the initiation of insolvency proceedings by creditors or the entity itself. Also the appointment of an insolvency resolution professional to manage the assets of the entity during the resolution process.
History of IBC
The history of IBC in India dates back to the early 2000s. When the need for a comprehensive legal framework for insolvency resolution became increasingly clear. In 2005, the Indian government established a committee to examine the existing laws related to insolvency and bankruptcy. However, the committee recommended the creation of new legal framework, that would provide a time-bound and transparent process for insolvency resolution.
In 2016, the Indian Parliament passed the IBC and it went into effect on 1st December 2016. However, the code provides for the resolution of insolvency for individuals, companies, and other entities.
Moreover, the code has streamlined the insolvency resolution process and has provided a clear framework for the resolution of insolvency. It has also empowered creditors to initiate proceedings when they are not receiving their due payments. While also allowing debtors to .declare insolvency.
Today, the IBC, continues to play a crucial role in promoting economic growth in India. That is by providing a transparent and efficient framework for insolvency resolutions. However, to ensure its effectiveness and relevancy in a rapidly changing business environment, the code continuously undergoes review and amendment.
Objective of IBC
IBC has several objectives that aim to streamline the insolvency resolution process. Also, to balance the interests of all the stakeholders. The main objective of IBC include:
- Providing a Time-Bound Process– The IBC provides a clear and time-bound process for the resolution of insolvency, allowing for the efficient resolution of cases and reducing the burden on the courts.
- Empowering Creditors– The IBC empowers creditors to initiate insolvency proceedings when they are not receiving their due payments, giving them voice in the resolution process.
- Allowing Debtors to declare Insolvency– The IBC also allows debtors to declare their own insolvency, providing a framework for them to restructure their finances and business operations.
- Balancing Stakeholders Interests– The code seeks to balance the interests of all the stakeholders, including creditors, debtors and employees and ensures that the resolution process is conducted faily and transparently.
- Maximizing Asset Value– The IBC aims to maximize the value f assets during the resolution process, ensuring the viable entities are liquidated in a transparent and time-bound manner.
- Providing a Clear Framework– The code provides a clear and comprehensive framework for the resolution of insolvency, replacing the existing patchwork of laws that governed insolvency and bankruptcy in India.
Since, its implementation, the IBC has facilitated the resolution of several high-profile insolvency cases, some of them are as listed below:
1 Essar Steel– This is not just a landmark IBC case, but also an example of largest returns-nearly 85 percent-realised by lenders on the company’s debt of Rs 49,000 Cr. Brought before IBC in 2017, the case was finally resolved in Nov 2019, when European steel giant ArcelorMittal got hold of asset following a Supreme Court judgment, giving Laxmi Mittal and entry into India. Shashi and Ravi Ruia, the company’s former promoters, tried every thing to get the asset back, from bidding via Numetal to making up Rs 54,000 Cr settlement offer. While the courts rejected all their attempts, ArcelorMittal revised its offer in the second round of bidding to Rs 42,000 Cr.
2 Dewan Housing Finance Ltd (DHFL)- This story began in 2019 with allegations of fraud and financial mismanagement by promoters Kapil and Dheeraj Wadhawan. This went on to become a fierce battle between bidders Oaktree Capital and Piramal Capital & Housing Finance, even as the Wadhawans went to jail on money laundering charges.. The case come for resolution in November 2019. In June 2021, the Piramal group emerged as successful bidder with an offer worth Rs 37,250 Cr. At that time DHFL owed a staggering Rs 87,000 Cr to creditors including banks, financial institutions, NCD and FD holders.
3 SREI Group– In Feb 2023, the Kanoria family, promoters of Kolkata-based SREI Group submitted a new resolution plan under Section 12A of the IBC with the SREI administrator, offering to pay off dues of around Rs 32,000 Cr to withdraw their companies from the insolvency process. Incidentally, Section 12A allows the management of corporate debtors to settle matters between creditors and withdraw cases under Corporate Insolvency Resolution Process (CIRP).
So it looks like the IBC is doing good for all those insolvency and bankruptcy cases.
Waiting for your feedback on this blog.
Anil Malik
Mumbai, India
2nth July 2024