Five years have passed since the Insolvency and Bankruptcy Act, the destination is far away ...

- Doubts are being cast on its effectiveness due to low recovery under the new Insolvency Code

Recently, the Insolvency Court has given important judgments in the bankruptcy case of Videocon Group and Diwan House Singh Finance Company (DHFL). The NCLT has approved the resolution plan submitted by other companies to takeover both the above debtors. It is only natural that questions arise in the minds of the general public about what this insolvency court and insolvency and bankruptcy law is and where it is used.

The Insolvency and Bankruptcy Code (IBC) was introduced in India five years ago to recover NPA loans from banks. Banks or lenders are suing in bankruptcy court for recovery of arrears from large companies and industries. Its effectiveness is being questioned due to the low recovery under the new Insolvency Code, but this is a new law and its impact is expected to be seen in the long run. Recently, 3 years have passed since the new bankruptcy law came into force in the country, so let us know its five-year accounts.

Operational creditors filed the most bankruptcy cases

There is a widespread belief that financial creditors and lending banks use bankruptcy laws to recover arrears from loan defaulters, but in contrast operational creditors have used the insolvency code. Operational creditors are vendors-sellers or suppliers who provide goods or services to the company. The employees and workers of the company are also a part of the operational creditors. Out of the 9 cases filed in the bankruptcy court, 18 cases were filed by the creditors as well as the operational creditors. The main reason for the aggressive insolvency case by the operational creditors is that it has a minimum liability of Rs 1 lakh in case of default. Since the enactment of the IBC Act in 2013, nine cases have been filed in bankruptcy courts.

A large number of companies went into liquidation, resolution and restructuring decreased

Under the IBC Code, most debtor companies have gone into liquidation, which literally means that the company's assets have been sold at a lower price. In half of the eight cases disposed of, liquidation has been decided, meaning the company has been liquidated. Resolution plans have been approved in only 15% of cases. The further liquidation is also due to the fact that banks have shifted most of their compounded loans, including NPOs, to IBC.

Real estate and construction companies are also in the limelight

The highest number of bankruptcy cases under the Insolvency and Bankruptcy Code are against manufacturing sector companies accounting for 40 per cent of the total cases, followed by real estate and construction sector companies accounting for 30 per cent of total bankruptcy cases due to note ban, GST and RERA. The realty sector has been severely affected by the above three policy measures. The realty sector has also been affected by the downturn in the economy with IBC rumors.

Deadlines missed in each case

Under the Insolvency and Bankruptcy Code, there is a time limit of 30 days (90 days) for resolution of any loan default case through restructuring or liquidation. In case of any delay, the rule is to give an additional time of 150 days first and then 90 days. More than 90 per cent of the cases accepted by the bankruptcy court have been settled in more than 90 days. Deadlines were expected to be met as the law was new and non-cooperation by defaulters has also led to major challenges in many cases.