Need a framework to study the impact of insolvency law: secretary for corporate affairs

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Amid fears the insolvency law has led to more liquidations than resolutions of troubled assets, Corporate Affairs Secretary Rajesh Verma argued on Saturday for a framework to study the impact of the legislation.

Pointing out that the government and regulator IBBI have consistently made course corrections to fill any gaps in the Insolvency and Bankruptcy Code (IBC), he also said the law has brought about a cultural shift in the dynamics between lenders and borrowers as well as promoters and creditors.

The IBC, which came into effect in 2016 and has been subject to six amendments to date, provides for time-limited, market-related resolution of distressed assets.

“Some critics have observed that IBC has led to more liquidations than resolutions…There is currently no framework to track the outcome of the insolvency and bankruptcy regime…continuing study is crucial 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 ceremony of a two-day CBI conference, he also noted that the World Bank’s Doing Business indicators that track CBI results have been scrapped.

“The government and regulator IBBI have consistently course corrected in addressing any gaps in the Code…As we work with agility in implementing the provisions of the Code…it is important that we have a rigorous, evidence-based approach to public policy research,” said Verma.

IBBI President Ravi Mital said a lot of stressed projects are being liquidated because they enter the IBC process very late.

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

While noting that the regulations are also geared towards liquidation, he said the regulator would look into the matter.

“In a month or two, we’ll be looking at it on how to encourage resolution rather than liquidation. The basic essence of IBC is to resolve a project as a going concern,” he said. -he adds.

Distressed assets should enter the IBC process as soon as possible and liquidation should be the last resort, Mital said.

Minister of State for Corporate Affairs Rao Inderjit Singh said the streamlining of the CIRP (corporate insolvency resolution process) and the liquidation process will do more to consolidate the progress made in securing the gains to the economy.

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

“The framework will handle all requests such as recognition of foreign insolvency proceedings and requests from foreign jurisdictions seeking to cooperate in Indian jurisdiction,” he noted.

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

The IBC falls under the Department of Corporate Affairs.

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