Next IBC reform should focus on speeding up resolution process: CEA Nageswaran

Chief Economic Advisor V Anantha Nageswaran

Chief Economic Advisor (CEA) V Anantha Nageswaran emphasised the need for the next round of Insolvency and Bankruptcy Code (IBC) reforms to focus on improving operational efficiencies to accelerate the resolution process, particularly for MSMEs.

Speaking at the eighth annual day of the Insolvency and Bankruptcy Board of India (IBBI), Nageswaran noted, "The next step for IBC reform is to improve operational efficiencies, to speed up the resolution process. This is especially important for MSMEs, for whom legal costs can prove to be substantial."

Nageswaran also highlighted the role of innovative solutions, such as pre-packaged insolvency for MSMEs, and interdisciplinary capacity-building for resolution professionals across legal, financial, and industrial segments, as crucial to reducing delays.

"Improving the efficiencies in the system comes down to using innovative rules such as prepack for MSMEs," he said, adding that the continued evolution of the IBC framework is necessary to help India achieve 7-8 percent growth over the next decade by freeing up capital to boost employment and productivity.

India's G20 Sherpa, Amitabh Kant, also stressed the need for swift resolution processes, emphasising the criticality of addressing delays in the system. "Justice delayed is justice denied; we need a breakthrough idea to fix this. I understand that a comprehensive review of IBC was undertaken last year, and amendments are under consideration of the government. These amendments are expected to reduce delays and increase the recovery to creditors," Kant said.

He also urged creditors to act promptly under the IBC, noting, "Creditors should apply as soon as possible. As IBC allows for withdrawal in case of settlement post admission."

Nageswaran informed that the IBC had rescued 3,293 corporate debtors till June 2024, with 1,005 corporate insolvency resolution processes concluded by the same period, taking an average of 571 days. He further noted that recoveries, which have averaged 32 percent of admitted claims and 168 percent of liquidation value, depend on factors like the nature of the business, market cycles and sentiments.

Liquidation value refers to the estimated recoverable worth of a corporate debtor's assets if the debtor were to undergo liquidation as of the date when insolvency proceedings begin.

He credited IBC reforms for reducing currency mismatches in the corporate sector and generating benefits across other areas of the economy. "The IBC is not responsible for the delay when the cases are not before the resolution process," he clarified.

The CEA concluded that the IBC continues to be a critical driver of systemic reform, having resolved the twin balance sheet problem of corporates in India.