'IBC's Resolution Capacity Has Increased, But More Needed'

(MENAFN- Live Mint) "The debt resolution capacity under Insolvency and Bankruptcy Code (IBC) should be stepped up by more than three fold to handle about 1,000 cases a year, said a senior government official.Speaking at seventh foundation day of Insolvency and Bankruptcy Board of India (IBBI), the rule maker and regulator, ministry of corporate affairs secretary Manoj Govil said pace of debt resolution under IBC was steadily increasing and expectation is that number of corporate rescue will go up to 300 cases this financial year from 180 cases last financial year. Govil said while this is a large number, the question is whether it should be sufficient as a study had shown that generally about 5,000 new bankruptcy cases are initiated every year.Initially around 60% of new cases were withdrawn at pre-admission stage itself, but after the government raised payment default threshold for initiating bankruptcy action from ₹1 lakh to ₹1 crore in 2020, larger cases are coming and fewer cases are expected to be withdrawn at the early stage. However, even if a third of new cases are withdrawn at pre-admission stage and some more subsequently due to factors including settlements, still there would be around 1,500 new cases to be resolved in a year, Govil explained.The secretary explained that the expected resolution of 300 cases this year is a large number and that one could argue that in future, the number of new bankruptcy cases requiring resolution could come down from around 1,500 a year. These are also a function of economic cycles.“I think we should have a capacity of at least 1,000 cases (a year),” Govil said.IBBI chairperson Ravi Mital said the number of cases to be resolved under IBC is expected to be 300 this financial year and that the regulator will in a week come out with three to four discussion papers on fresh proposals to reduce delays. Mital said all companies that have been salvaged under the IBC process are doing well, indicating the quality of the debt resolution.“This is a very big contribution of IBC and it has led to growth in the economy,” said Mital.He said till August this year, 135 debt resolutions have happened, which would have gone up by end of September.“If that is correct, we will end this year with 300 (bankruptcy) resolutions,” he said.Manoj Govil said a way to increase capacity to resolve cases is to fill up positions of members in National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT), which is being done. In November 2022, the government offered 15 member positions and earlier this year, 21 member positions were offered. Considering the members who have joined in less than a year and will be joining soon, the capacity is more than 90%, which is more than that of most High Courts. There is a lot of capacity that has come, which will help, explained the secretary. With better monitoring and processes, admission of cases in tribunals will improve, the secretary said.Improving the outcomes of debt resolution under IBC is a priority for the government as it helps to clean up the balance sheets of companies and banks and facilitates a fresh investment cycle. The government is currently working on further amendments to IBC to further improve the efficiency of the system.


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