The government is aiming to reduce the time taken for admission of cases under the Insolvency and Bankruptcy Code (IBC) in Company Law Tribunals to three months from the current average of 400-600 days.
This will be achieved through its next set of amendments after the Lok Sabha elections, a senior Corporate Affairs Ministry official said.
It is also aiming to improve the realisation against claims to at least 50 percent from the current average of 35 percent.
“Though the (Insolvency and Bankruptcy) Code says admission has to be done in 14 days, the timeline is not being implemented. Admission of cases takes 400-600 days, it can be reduced to three months. Some changes proposed are with a view to reduce the time,” the official told Moneycontrol.
If the timeline of the admission process is reduced, the IBC will become more friendly for resolution. The amendments will be brought as a change in the law, he said.
The time taken at the time of admission is due to the challenge of establishing the validity of loans. To speed up the process under the IBC, public sector banks have asked the Corporate Affairs Ministry to use the NeSL repository to establish the validity of loans. If implemented, this could reduce the time taken for admission to NCLT significantly, a senior banker told Moneycontrol.
NeSL is a government company which serves as a repository of evidence on debts. Currently, the financial debt is proved from documents such as the balance sheet and the TDS deductions.
Persistent delays in the process still remain a major challenge which significantly escalate costs, diminish enterprise value and impede recovery.
Improved realisation against claims
“The aim is to reduce the time taken in processes and improve realisation. We have got 30-35 percent realisation against claims on average. Though quarter to quarter it changes from 29 percent to 36 percent. We want to increase it further to 50 percent. To move it in this direction amendments are being discussed,” the Corporate Affairs Ministry official said.
IBC Amendments
Multiple IBC amendments are being discussed, which will be passed by Parliament after the formation of the new government. Here are a few:
Fast-track corporate insolvency: This will permit financial creditors to drive the insolvency resolution process for a corporate debtor outside of the judicial process. Creditors will have the option of reaching an informal out-of-court resolution that will be taken to the National Company Law Tribunal (NCLT) only for final approval.
Project-wise resolution: This will increase the chances of successful resolution because the focus will be on specific distressed assets rather than on the broader segment. By allowing proceedings to be initiated only against specific projects that have defaulted, it could help to minimise disruption to the company's operations and potentially preserve value for stakeholders.
Cross-border insolvency: This will cover circumstances in which an insolvent debtor has assets in more than one country. Typically, domestic laws prescribe procedures for identifying and locating the debtors’ assets and converting them and later distributing them to creditors. However, there are various insolvency cases in which corporations owe assets and liabilities in more than one country.
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