Maximising asset value through IBBI regulations

We analyse the role of IBBI in its aim to maximise asset value, one of the primary objectives of the IBC, through its regulations.

By Jyoti Prakash Gadia  

The current budget has rightly emphasised the essential need for the next series of economic reforms to guide us towards the coveted goal of a "Viksit Bharat." Over the past ten years, the 'Insolvency and Bankruptcy Code' (IBC) Act of 2016 stands out as a major economic reform initiative by the Government aimed at fostering an improved credit culture and creating an effective ecosystem for resolving stressed assets. According to reports, by September 2024, 1,068 resolution plans have been approved, resulting in creditors realising Rs 3.60 lakh crores. While the realisation in terms of liquidation value and fair value of assets has improved, the recovery as a percentage of total claims still hovers around 30%, with persistent delays in the resolution process.

The Insolvency and Bankruptcy Board of India (IBBI) is the regulatory body under the code, with statutory powers. This discussion focuses on the role of the IBBI in its aim to maximise asset value, one of the primary objectives of the IBC, through its regulations.

Basic Features

As a regulator under the IBC, the IBBI has three major functions: quasi-legislative, executive, and quasi-judicial. The IBBI regulations extend not only to the processes but also to various service providers under the code. The service providers under the IBC include, among others, Insolvency Professionals, Insolvency Professional Entities, Insolvency Professional Agencies, Information Utilities, Registered Valuer Organisations, and Registered Valuers.

New Regulations

While several aspects of the IBC are still evolving, the IBBI is playing a proactive role with adequate adaptability to foster the IBBI process with the aim of maximising asset value. In this respect, 'operational efficiency' is being introduced into the processes involved and the prescribed procedures. Simultaneously, facilitating regulations are being developed to ensure transparency and fair play while reducing avoidable delays.

A series of guidelines and regulations have been issued in the recent past to preserve and maximise asset value. The use of the electronic online auction platform eBKray (BANKBET) has been made mandatory, effective from 1st November 2024. This will provide a centralised auction process, creating transparency and improved efficiency while reducing the risk of malpractice. The transparent auction process will allow for wider participation with multiple bidders, thereby increasing the chances of achieving maximum prices for the assets.

The IBBI regulations also stipulate eligibility criteria for bidders to ensure that only qualified and serious participants engage in the auction process. Bidders are also required to be registered to ensure a transparent auction process and for tracking bidder activity.

To maximise asset value, insolvency professionals are required to develop suitable marketing strategies using advertising and outreach to potential bidders. As per the regulations, assets need to be displayed for greater awareness among prospective bidders.

Furthermore, the IBBI regulations mandate independent valuation of assets by registered valuers to ensure that valuations are fair and objective. The regulations also specify valuation standards to guarantee consistency and reliability in the valuation process.

Additionally, the appointment of Insolvency Professionals under various processes is expected to be streamlined through a new circular dated 11th February 2025, aimed at maintaining objectivity and clarity. This is anticipated to reduce delays. The circulars aim to facilitate the efficient conduct of processes by insolvency professionals, enhancing operational efficiency.

The IBBI regulations also define the role and responsibilities of insolvency professionals, emphasising the need to act in the best interest of stakeholders. An accountability mechanism has been established, with a focus on professional ethics, oversight by the IBBI, and disciplinary action for non-compliance.

Way Forward

As outlined above, the IBBI has made suitable amendments to regulations over time based on feedback, aiming to reduce delays at various stages of the resolution process. However, we are still grappling with significant delays. According to reports, the average time taken in the process is over 600 days, compared to the maximum time stipulation of 330 days. The mechanism needs to be streamlined and strengthened to reduce delays, and all stakeholders must contribute towards this objective. It may also be necessary to provide more resources at the tribunal level to facilitate the timely resolution of cases.

Conclusion and Suggestions

As the designated regulator under the Insolvency and Bankruptcy Code, the IBBI is taking a pragmatic approach to address the various issues arising during the resolution process under the new legislation. A series of regulations have been introduced to enhance operational efficiency and maximise asset value.

All stakeholders need to collaborate to create a more productive environment that maximises asset value. As a professional organisation fully engaged with the system, it is suggested that a more holistic approach is needed to address challenging issues, particularly those relating to undue delays. An ongoing dialogue is necessary to identify the causes of bottlenecks in the system and bring greater clarity and simplicity to regulations and procedural guidelines, avoiding any divergence in interpretation. Unnecessary litigation on certain matters leads to delays, which must be curbed. Professional agencies, entities, and their representatives can evolve internal self-regulating guidelines in the interest of the successful implementation of the Code.

The views of financial creditors should be collated and addressed to ensure a speedy resolution process. A standing committee or forum could be considered to bring stakeholders together to address issues and concerns, facilitating quicker resolutions. Rather than working in independent silos, a collaborative spirit is essential. Further strengthening at the adjudication level will also help reduce delays and improve efforts to maximise asset value.

(Jyoti Prakash Gadia, Managing Director at Resurgent India.)

Views are personal, and do not represent the stand of this publication.