2021-07-02 15:38:02
The above is an article from Hindu. A good article on IBC to read regarding the issues and challenges in the Insolvency and Bankruptcy Code (IBC) 2016. I am clarifying some points below [Those who want to understand the basics of IBC, please refer the book]:
1) Indian companies are run by the owners: The owners have appointed Board of Directors (BoD) for the decision making in the company but the owners themselves appoint the BoD or their family members. In developed countries the ownership is dispersed among several shareholders/owners and professionals are appointed as BoD to run/manage the company.
2) The insolvency/bankruptcy cases are admitted in NCLT for its resolution. And whatever NCLT decides, then appeal can be filed in NCLAT (appellate). There are very few benches of NCLT and NCLAT and the number of members in NCLT/NCLAT are also very few.
IBC is not the only mandate of NCLT/NCLAT, rather they also handle cases under Companies Act 2013 such as mergers and mismanagement cases.
3) Anyone either Debtor/Creditor can move to NCLT under IBC 2016 and first NCLT needs to admit the application for insolvency depending on whether its a valid case or not. And once the creditors approve the resolution plan then again it finally needs to be approved by NCLT but there is not much to be done by the NCLT. But it has been seen that NCLT has taken a lot of time in approving the IBC cases.
4) Even if Supreme Court has clarified a number of legal provisions in the IBC but still NCLT/NCLAT allows the same issues to be litigated again and again by the creditors/debtors. [Debtors mean the company for which bankruptcy has been initiated]
5) HAIRCUT: If a bank has given Rs. 100 loan and the company gone bankrupt and bank is able to recover only Rs. 40 then Rs. 60 is the haircut (basically the loss). The article clarifies that in some cases haircut seems to be very high but it may not be the true picture. Why??
Answer: If a company XYZ borrowed Rs. 1000 crore and the company is not able to run then the Creditors/bankers filed for bankruptcy and say the creditors are able to recover Rs. 400 crore and we will say that haircut was 60%. But it may be possible that the company XYZ has given a guarantee of Rs. 3000 crore (i.e. the company has become guarantor in some other case). Now since the company XYZ borrowed Rs. 1000 crore and gave guarantee of Rs. 3000 crore, So, the liability on Company XYZ becomes Rs. 4000 crore BUT the recovery happened only of Rs. 400 crore (i.e. 10%)........ So the haircut becomes 90%. So, we need to look at the context also rather than just the haircut.
6) Success of the IBC should be measured in terms of how many buyers we are getting for a bankrupt firm and there should be more of strategic buyers who are willing to buy the stressed firm and are willing for resolution and interested in running that firm and making it profitable.
7) The code has clearcut timelines in terms of resolution of IBC cases and we need to adhere to the timelines. For example:
Upon admission of application by NCLT, Corporate insolvency process shall be completed within 180 days (in complex cases it can take 270 days) .The corporate insolvency resolution process should be completed within 330 days if there are any legal proceedings involved but in case of exceptional cases (tardy legal proceedings) it can be extended even beyond 330 days.
6.1K viewsedited 12:38
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