IBC mechanism needs structural changes to expedite faster resolution of companies – The Economic Times

Clipped from: https://economictimes.indiatimes.com/news/economy/policy/only-structural-changes-in-ibc-mechanism-can-help-to-expedite-the-faster-resolution-of-companies/articleshow/80478370.cmsSynopsis

The structural reforms needed are an increase in the number of benches, outsourcing of administration function to a specialized agency, clarity on the timeline for submission of objections on resolution plan and credible data management on on-going cases which will help in ironing out major creases that thwart the faster resolution of cases.

Mumbai: Even as the economy post the pandemic led lockdown is trudging back to normalcy, there is an urgent need to have structural reforms in the Insolvency & Bankruptcy Code (IBC) for the resolution of cases faster, a report authored by experts said.

The structural reforms needed are an increase in the number of benches, outsourcing of administration function to a specialized agency, clarity on the timeline for submission of objections on resolution plan and credible data management on on-going cases which will help in ironing out major creases that thwart the faster resolution of cases.

According to a recent report by Alvarez & Marsal India on IBC, until September 2020, 4,008 cases have been admitted for CIRP in NCLT, of which only about 52% have been closed.

“After four years of its implementation, we have seen that delays in the resolution process are impacting investors who are willing to invest and is resulting in lower recoveries for creditors,” said Nikhil Shah, Managing Director, Turnaround & Restructuring Practice at Alvarez & Marsal India. “Investors won’t block their capital for two-to-three years due to lack of clarity around the process timelines. If we make targeted improvements, then we can prevent this mechanism from falling the way of the Debt Recovery Tribunal (DRT).”

The report suggests that multiple litigations initiated by stakeholders during the CIRP process, administrative delays at NCLT and inconsistencies in judgments across benches have been some of the key driving forces for the slower resolution process.

The rate of filing of new cases has far exceeded the rate of closure of ongoing cases, resulting in nearly 75% of the 1,942 ongoing cases having aged more than 270 days.

“Multiple litigations initiated by stakeholders during the CIRP process, administrative delays at NCLT and inconsistencies in judgments across benches have been some of the key driving forces for the slower resolution process,” says the A&M report. “Prolonged delay in resolution, lengthy court battles and uncertainty of time-bound recovery post-approval of resolution plan have deterred many potential investors to participate through the IBC process.”

While there has been a gradual increase in benches from 11 benches in 2016 to 16 benches in 2020, it has been done reactively instead of proactively, despite the disproportionate increase in the caseload. As a result of this, only 2,066 cases have been disposed of (including resolution, liquidation and withdrawal).

As per the report, the number of benches needs to increase along with establishing separate benches for insolvency with the specialized talent pool and an appointment of judges with commercial exposure.

On the technology front, the tribunals need to have outsourcing of administration function to a specialized agency in line with other jurisdictions, which will help judges to focus only on core judicial function only. “The UK’s ‘Her Majesty’s Courts and Tribunal Services’ or US’s ‘Administrative Office of U.S. Courts’ are specialized entities focusing entirely on court administrative matters,” says the report.

“NCLT should have improved infrastructure like High Courts including their own IT and electronic infrastructure, their own cadre of staff and court officers,” said Pooja Mahajan, Managing Partner, Chandhiok & Mahajan in the report.

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