IBC BRIEF

Powering with Information

Released from the desk of IBBI Research Chair

Volume 1, July-Sept 2023

1."Insolvency and Bankruptcy Code a crucial milestone in the economic

reforms": PM Modi
The Economic Times, 28th August 2023

On the occasion of a seminar titled, ‘Rejuvenation of economy under Insolvency Laws’

organized by Insolvency Professionals Council of India, Prime Minister Narendra Modi
stated that the IBC code has contributed to take the country to a bright spot. He puts on
record that insolvency reforms, one of the key reforms which played a role in restructuring
process of the country and contributed to the growth and development of the economy.
Insolvency reforms serve as a compliment to other reforms viz. Industrial reforms, financial
sector reforms, tax reforms etc. and work towards achieving the goals under economic
growth and stability.

2. Fresh IBC cases fall, mirror banks' strong asset quality

The Economic Times, 28th August 2023

Economic Times takes a snapshot of the performance of IBC Code and states that a total of
238 cases were admitted during Q1 of FY24 as against 347 cases in the previous quarter. An
average hair cut of 68 per cent is experienced in recovery of financial creditors. The time
incurred for resolution is still high, but it is reducing from peak levels. A snap shot of the
review reveals that the total amount of debt resolved through the IBC stands at Rs 9.2 lakh
crore. Around 50% cases were initiated by operational creditors and 45% by financial
creditors. Of the 4,700 cases that were closed until 1QFY24, only 15% were resolved, while
45% faced liquidation. About 65% of the ongoing cases have crossed 270 days. Out of the
total admitted cases until Q1 FY24, 39% were from the manufacturing space, 21% from real
estate, 11% from construction and 10% from retail/ wholesale trade.

A review of the functioning of the IBC Code takes into account the continued time delay
against the stipulated days of resolution and better participation in the resolution process by
all concerned – financial creditors, corporate debtors etc. The amount of debt touching Rs 9

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lakh crores that has gone into the resolution exercise shows the depth of the engagement and
involvement.

3. NCLAT's Call for Unified IBC Interpretation: A Crucial Reckoning for

India's Insolvency Landscape

The Economic Times, 28th August 2023

The news calls for a unified interpretation of IBC code by NCLT and NCLAT benches. The
divergences in approach among NCLT benches erode the integrity of the insolvency process
and imperil the interests of stakeholders. NCLAT Chairman is expected to take the lead in
crafting comprehensive guidelines that ensure consistency in IBC interpretation. This is
required for IBC realize its full potential and substantially contribute to India's economic
revitalization. India's insolvency landscape should evolve into a realm of coherence,
predictability, and equity.

4. Business parameters of companies improve after insolvency process

Times of India, 28th August 2023

A study by Indian Institute of Management, Ahmedabad reveals that implementation of IBC

Code has benefitted companies as there is significant improvement in various business
parameters after undergoing the insolvency proceedings. However, these firms face some
challenges in the areas of taxation, access to finance etc.

The study says that creditors, on an average, realized 32 per cent of the admitted claims and
168 per cent of the liquidation value in cases resolved under IBC. About 75 per cent of those
surveyed were found to be happy with the post resolution productivity levels. Access to credit
is found to be an issue with the resolved firms. Post resolution activity and performance
reveals an increase in the value addition by the resolved firms to the company. The study
findings that resolution professionals to be in their responsible job require business and
management skills, need to be taken seriously. Understanding of the resolution process across
various stakeholders is also required, which can be materialised by organizing more capacity
building interventions and awareness programs.

5. Centre pushes for faster admission of corporate insolvency cases at

NCLT
Business Standard, 13thAug, 2023

As per the draft guidelines for NCLT being finalized by Ministry of Corporate Affairs, NCLT
should not look into the question of company’s default once it is established by financial
creditors in the proceedings of the IBC. NCLT should look the IBC specified guidelines
rather than relying on the company law rules.

Since a company’s default is a situation experienced by financial creditors after a long

journey of persuasion by creditors and subsequent decision of the creditors to go for
insolvency, NCLT need not look into the default issues, rather focus on complying with the
rules of IBC by the distressed firm, financial creditors and operational creditors.

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6. Corporate affairs ministry assessing need to ramp up bench strength of
NCLT

Business Standard, Aug 20, 2023

The Ministry of Corporate Affairs (MCA) is examining an increase to the existing strength of
the National Company Law Tribunal benches to manage the increasing case load. This is in
recognition of the time taken to handle the number of cases by the NCLT benches. The
government has been examining the use of technology including an IT-enabled system for
case management to accelerate processes and reduce reliance on manpower. There is still a
need for additional strength at the benches. Between November 2017 and August 2022, the
NCLT dealt with 31,203 cases for the initiation of insolvency, of which 7,175 were pending
at the pre-admission stage and 3,369 were pending post-admission, as per the data provided
by the Tribunal.

Shortage of adequate judges in NCLT is one of the reasons cited for the delay in the
resolution process and the timely decision by MCA to increase the strength of NCLT to
manage the increasing case loan will smoothen the overall resolution process.

7. Insolvency regulator IBBI Chief pitches for Standardising Valuation

The Hindu Business Line, August 20, 2023

In his piece written for IBBI’s Quarterly Newsletter released in August 2023, Shri Ravi
Mital, Chairperson IBBI stated that a standardised valuation framework is the need of the
hour as it can help achieve successful insolvency resolutions under the IBC. “Standardised
valuations would enable stakeholders to make well-informed decisions, instil confidence in
the resolution process, and maximise value for all parties concerned in the resolution of
distressed enterprises”, Mr. Mital stated. This is important in light of the fact that no definite
standard has been prescribed under IBC for valuations. Currently a registered valuer is
required to undertake valuation as per internationally accepted valuation standards or
valuation standards adopted by any Registered Valuers Organisation (RVO).

Valuation is an important segment of the overall insolvency ecosystem, and the Insolvency
and Bankruptcy Board advocating standardization process is a step in the right direction.
Maximizing value for the firm can be materialized with right valuation norms. Implementing
internationally accepted norms can bring more transparency.

8. 65% of insolvency cases going beyond deadline

Times of India, 23rd Aug 2023

There is delay in disposal of cases under IBC, as only 35 per cent of the cases are disposed
within the deadline of 270 days for resolution. An average of 521 days is taken now for
disposal. There is delay in the resolution process as cases have gone to multiple forums and
several objections have been raised during the exercise. It is suggested that the courts can
categorise various applications on the basis of gravity and a set time limit and mode of
disposal for category.

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It is found that litigation by the concerned stakeholder in various stages contribute to delay in
the overall resolution process. Presently, the double the time is experienced in resolution.
Gradually, the time duration is to be reduced from the current 521 days to a reasonable level.

9. IBC recovery rates higher at 32.6% in large firms, shows IBBI data
Economic Times, 24th August 2023

As against the admitted claims of Rs 8.18 lakh crore, the recovery under the IBC is Rs 2.67
lakh crores in the case of large claims exceeding Rs 1000 crores, IBBI data reveals. This
constitutes a recovery rate of 32.6 per cent. The blame for extended recovery periods and
subsequently higher haircuts for both large and small firms is as a result of prolonged
litigation, causing delays in asset resolution.

The recovery rate under IBC at 32 per cent is often cited as on lower side, however taking
into consideration of converting a firm into going concern, all-round optimism in the revival
of the firm and the opportunity to recycle the funds by the creditors are all going to benefit
the economy.

10. Insolvency code has strayed from intent: Parliament panel

The Hindu, 3rd August, 2023

The Parliament Panel suggests a benchmark for the ‘haircuts’ to be taken by financial
creditors, in line with global standards in light of the fact that the code has deviated from the
original intent and questioned the low recovery rates, long delays in the resolution process
and the high number of vacancies in the National Company Law Tribunals (NCLTs). The
Panel report titled ‘Implementation of IBC-pitfalls and solutions’ is tabled on Parliament.
“Greater clarity in purpose is needed with regard to strengthening creditor rights through the
mechanism devised in the Code, particularly considering the disproportionately large and
unsustainable ‘haircuts’ taken by the financial creditors over the years,” the Panel observed.
The Panel also observed doubts about the competency of certain Resolution Professionals.
The tardy admission of cases and approvals of resolution plans by NCLT were the main
reasons for delays in insolvency resolution. Expressing ‘deep concern’ about the NCLT, the
Panel commented the need for faster filling of vacancies of judges at NCLT.

The three top reasons that stand as hurdle in the overall insolvency eco system are
highlighted by the Parliamentary Panel. These are the lower recovery rate i.e. 32 per cent,
vacancies in the NCLT benches, and the long delay experienced in resolution. Efforts are to
be taken to arrest these to make the resolution system faster and effective.

11. IBC timeline at three year high, more than double the mandated period
The Economic Times, 31st August 2023

The average time taken for resolution under the IBC continues to rise and is now at a three
year high, as per the report by India Ratings & Research. Data released by the Insolvency and
Bankruptcy Board of India (IBBI) June 2023 newsletter reveals that the average time taken
for a corporate insolvency resolution process (CIRP) has increased further and stands at 635

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days for operational creditors (OCs) and 643 days for financial creditors (FCs), as against the
time limit of 270 days. This delay has further worsened from a year ago when realisations for
both Operational creditors and financial creditors took around 550 days. So far, a total of
6,815 cases were admitted of which 2073 are still undergoing the resolution process.

The time taken for resolution is increasing year by year, a trend that is to be arrested.

11. Clear dues to avoid insolvency

Times of India, 24th August 2023

IBC code has its effect as there are cases that the promoters of companies have started
regularising their dues as a result of stakeholders approaching to file cases under IBC. This is
in anticipation of losing control over the affairs of the company, the news reports. Once the
case is admitted NCLT would appoint Resolution Professional and remove promoters in
managing the company. The number of cases closed before admission in NCLT is 3.7 times
higher than the number of cases that are admitted. "A distressed asset has a life cycle. Its
value gradually declines with time if distress is not addressed. The credible threat of the code,
that a corporate debtor may change hands, has changed the behaviour of debtors. Thousands
of debtors are resolving distress in the early stages. They are resolving when default is
imminent, on receipt of notice of repayment but before filing an application, after filing
application but before its admission, and even after the admission of application, making best
efforts to avoid consequences of the resolution process. Most companies are rescued at these
stages," IBBI comments. There were 25,565 cases that came for filing of which 6,811 cases
admitted by NCLT up to June 2023, operational creditors triggered 49.5% or 3,369 cases,
44.6% was by financial creditors, with the rest coming from the corporate debtor or the
company.

The objectives of the insolvency code are getting materialized as there is a tendency among
the corporate debtors to clear the dues as otherwise the creditors may take steps under the
IBC law for recovery and resolution. To anticipate the action taken by the affected parties,
companies are making payments to clear the dues. This is a positive sign and promotes
entrepreneurship and result in firms moving into a going concern.

12. Global corporate bankruptcy wave will get even uglier

The Straits Times, Singapore

The bankruptcies are surging around the world, in some countries reaching volumes not seen
since the aftermath of the 2008 financial crisis. It is likely the start of a wave of corporate
defaults. Globally, cases filing under bankruptcies are increasing. The factors responsible for
this are weakening demand, increasing inflation, over indebtedness of companies, higher
borrowing costs etc. In US, bankruptcies in the first six months of 2023 are the highest since
2010. United States bankruptcies in the first six months of 2023 were the highest since 2010.
In England and Wales, corporate insolvencies are near a 14-year high. Swedish bankruptcies,
the highest in a decade, while in Germany, bankruptcies jumped almost 50 per cent year on
year in June to the highest level since 2016. In Japan, bankruptcies are at their highest in five
years. During recession times, bankruptcies emerge. A prolonged period of corporate distress
is only just beginning.

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The global situation in resolution of insolvency is increasing, thanks to the increasing
corporate defaults, weakening demand, inflationary pressures, increased borrowing costs etc.
The increase in number of cases of insolvencies in USA, UK, Sweden, Germany, Japan
indicate that efforts are required to speed up the process and ensure recycling of funds for
business and industry.

13. Evergrande Bankruptcy: Chinese Real Estate Sector in Crisis As

Evergrande Collapses

Forbes.com, August 22, 2023

China, the second-biggest economy is smelling recession? Chinese property developer

Evergrande filed for bankruptcy in U.S, has spread fears that an economic slowdown could
spark another global recession. The Chinese government said that things are under control
even though post covid recovery has not taken off. Real estate is estimated to make up 30%
of China’s GDP, there are fears the situation in China’s real estate market could spread and
create a downward spiral of the property market depressing growth. The bad loan in Chinese
banks also is increasing as the NPA rate is expected to touch 4.4% from 1.9%, Moodys says.
The currency - Chinese yuan has depreciated in value, and house sales have fallen 6.5% in
2023. The unemployment rate for young Chinese workers hit a 21.3% high in June 2023.

The Chinese economy is reeling under recession, as economic slowdown starts coupled with
currency depreciation. The real estate market is not in a good shape in China so also the bad
loans in the banking system. This may have repercussions in the international markets.

14. Insolvency and Bankruptcy Board clarifies calculation of liquidator's

fees

The Business Standard, September 28 2023

The Insolvency and Bankruptcy Board of India (IBBI) has made it clear that the calculation
of the liquidator’s fee has to be based on a percentage of the amount realised from assets, and
not cash and bank balance, including term deposit, mutual fund, and quoted share available
on start of the liquidation process. The IBBI has also asked the insolvency professionals to
ensure implementation of this guideline. The excess fee charged if any is to be returned.

It is fair to follow international norms on valuation and Insolvency Resolution Professionals

have to ensure complying with IBBI guidelines.

15. Govt negotiating with UNCITRAL on cross-border insolvency

mechanism

Financial Express, September 28, 2023

It is reported that Govt of India is negotiating with United Nations Commission on

International Trade Law (UNCITRAL) to amend the provisions related to cross border
insolvency to enable to proceed against foreign firms that have assets and debts in India.
Currently, the Insolvency and Bankruptcy Code has no provision to restructure firms

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involving cross-border jurisdictions. Since there is more activity under globalization, several
domestic companies have a foreign presence, it’s necessary to ensure that the assets of
corporate debtors be brought under the fold of the IBC process and claims of foreign lenders
are also met. The proposal to frame rules in line with UNCITRAL for India is under
consideration and rules are yet to be announced. It is suggested that a balanced approach to
protect the interest of creditors as well as debtors are solicited in framing the rules on cross
border insolvency.

Globalization that swept across the globe since the late 1990s resulted in movement of goods,
services and capital across countries. This enabled emergence of multi- national corporations.
However, to protect the interest of various parties cross border insolvency laws are to be
streamlined and made available to all parties engaged in international operations to address
their woes. Discussions with United Nations Commission on International Trade Law are to
be continued.

16. IBBI’s game changing reforms: Bridging gaps & boosting efficiency in
corporate insolvency

The Hindu Business Line, September 19, 2023

Insolvency and Bankruptcy Board of India (IBBI) has brought in changes in the IBC Code to
streamline and strengthen the insolvency proceedings process. Financial or Operational
creditors filing an insolvency application are required to submit details like chronology of
debt and default, part payment details if any, date of last acknowledgement of debt, limitation
details etc. along with the evidences. This would help in effective adjudication under the Act
but will also aid in weeding out applications which are barred by time at the very threshold.
Another significant change in CIRP regulations is putting in place guidelines that smoothen
hand over of records and assets from the erstwhile management to the resolution professional.
Resolution Professional has now power to verify and admit claim beyond 90 days, provided
creditor gives genuine reasons for the delay that would reduce potential litigation for any
creditor’s claim after the 90 days deadline under the Code.

Based on the experience, IBBI has put in place certain changes in the IBC regulations.
Systems and procedures are well defined and insolvency applications are submitted with full
details along with evidences so as to help in effective adjudication under the IBC Code.
Likewise, the rules on handing over of charge to the interim resolution professional from the
management of the stressed company are reiterated clearly. The flexibility offered to the
Resolution Professionals to condone the delay beyond 90 days for creditors in submitting
their claims is also on right direction.

17. Questioning priority: Govt dues in IBC

The Business Standard, Aug 29, 2023

Resolving stress of companies is the prime objective of IBC Code and this is done in a time
bound process, adhering rules for claims, and takeover in a new environment. Thus, the
broader objective of maximising the asset value, promoting entrepreneurship and easing the
credit availability are achieved. The priority of claims in the IBC is in the order of resolution
costs, workmen’s dues and secured debts, employees’ dues, unsecured financial debt, any
amount due to the Central Government and the State Government including the amount to be

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received on account of the Consolidated Fund of India and the Consolidated Fund of a State,
if any, and any remaining debt and dues. Notes on clauses to the IBC Bill explain why
unsecured financial debts have a priority above government dues. The Parliamentary
Standing Committee, that endorsed the IBC Bill, noted that safeguarding the dues of
unsecured creditors aims to encourage the market for corporate bonds and other unsecured
debt.

IBBI has made it very clear the priority of claims under the IBC proceedings. As per the
Code, secured financial creditors rank the highest in the order of priority, followed by
unsecured financial creditors, government dues and, finally, operational creditors. Hence,
financial creditors like banks have the first claim. Thus, unsecured financial creditors are
also get priority over government dues as this would promote the market for corporate bonds
and unsecured debts.

18. IBBI allows insolvency professional entities to make submissions

electronically

The Hindu Business Line, Sept 04, 2023

The Insolvency and Bankruptcy Board of India (IBBI) has granted Insolvency Professional
Entities (IPEs) acting as Insolvency Professionals (IP) the facility to electronically submit
insolvency information. This digital submission capability was previously unavailable to
IPEs functioning as IPs. The decision comes approximately a year after IBBI allowed IPEs to
register as IPs and engage in activities governed by the Insolvency and Bankruptcy Code
(IBC). Previously, individual IPs were required to submit Corporate Insolvency Resolution
Process (CIRP) related information and records to IBBI for monitoring purposes, utilizing the
electronic platform available on the IBBI’s website. The IBBI has now rectified the anomaly
by issuing a circular permitting IPEs acting as IPs to electronically submit CIRP forms. This
enables the IBBI to monitor the progress and performance of assignments undertaken by
these entities.

With this amendment, Insolvency Professional Entities (IPEs) are made at par with
Insolvency Professionals in submitting the records electronically. This would enable IBBI to
get control of the processes and result in faster decision making and communication.

19. Stronger valuation rules in works for assets under IBC

The Economic Times 04th Sept 2023

Proper valuation of a company is an important part of any merger and acquisition. The
Ministry of Corporate Affairs (MCA) is planning to bolster the regulatory regime relating to
registered valuers and develop the profession to ensure better resolution of stressed
companies and maximisation of toxic asset value under the IBC. This is in light of the
stressed firms worth tens of thousands of crores are up for grabs under the IBC but there are
no uniform standards for valuing these assets, nor is there a proper regulatory framework
governing the valuation profession.

As per IBC code, the resolution professional is required to appoint two registered valuers to
determine the fair and liquidation values of a stressed firm and arrive at the valuation after the

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physical verification of the inventory and fixed assets of the firm. In case the two estimates
show wide difference, the resolution professional can hire a third agency and the average of
the two closest estimates is taken as fair value. A regulatory regime for registered valuers can
bring more standards in valuation norms.

20. Time matters, SBI MD Tewari recommends measuring time for each
IBC process bucket
The Hindu Business Line, September 17, 2023

State Bank of India has made a suggestion to keep timelines of various segments within the
IBC process to reduce delays. While the legislation sets a 330-day overall outer time limit,
tracking timelines across different stages is essential. Currently, the average completion time
for Corporate Insolvency Resolution Process (CIRP) under IBC stands at 630 days, drawing
criticism for its delays. The IBC mandates a 180-day completion period for CIRP, extendable
by up to 90 days, with a total outer limit of 330 days. Within these parameters, timelines are
to be drawn for various actions within the process viz. Adjudicating Authority (AA)
admission, Resolution Professional (RP) actions, Committee of Creditors (CoC) approvals,
and AA resolution plan approvals etc.

The implication of the comment from the largest institutional creditor in the country is
relevant at a time, there exist huge time lags in finalizing the verdict under IBC. Separate
timeline for each process under IBC can instil some discipline in adhering to the time and can
reduce the delays.