Given the slow pace of resolution of cases under the IBC, this is a sign that the system is proving to be weak

- An environment conducive to trust in bidders seeking to buy the assets of defaulters is essential

With five years to go before the Insolvency and Bankruptcy Code (IBC) comes into force, it is imperative that the deficiencies in IBC be rectified in a timely manner to recover money from defaulting companies. So far, 30 cases have been filed under the IBC for recovery of money from companies that failed to repay money to lenders, but very few companies have been able to recover money. In the top 100 cases, the average recovery is only 5 per cent. In the absence of corporate bonds in India, companies have been getting money from banks to meet their financial needs, especially for undertaking large projects. If a company goes to the bond market to meet its financial needs, its bonds are reviewed and analysts rate the payments of the bonds in their own way. Companies have so far preferred to borrow money from banks or non-banking finance companies in view of the fact that it becomes difficult for companies to raise money from the market if a poor rating is found in a case. However the situation has changed since the implementation of IBC.

Prior to the introduction of IBC, the company's promoters could hide their weaknesses by collaborating with bank managers, as well as easily restructuring loans. This led to a significant increase in non-performing assets in the banking sector and the laws of the time were insufficient to recover money from weakening companies. With this in mind, IBC was formed. With the implementation of IBC, the problem of bad loans of banks was expected to be resolved quickly, but such a picture is yet to be seen. Loans are being recovered under IBC, but not within the time frame.

According to a recent report in Parliament, lenders, including banks, had repaid Rs 4.5 trillion by June 20 through a resolution plan approved for seven corporate insolvency resolution cases under the IBC. Through approved plans of the top 100 corporate insolvency resolution process, lenders have received Rs 4.5 trillion, which is about 5 per cent of the approved claims. It was also informed that Rs 216 crore was recovered under a separate resolution framework for lenders providing financial services other than banks. In some cases, it is the lender's turn to accept 30 to 40 percent of the haircuts.

With the implementation of IBC, the number of cases under it was increasing every year. However, due to Corona, the number of cases filed in the last financial year slowed down and in the financial year 2021, 4 cases were registered which were 14 in 2020. In view of Corona's condition, the government suspended filing of new cases under the IBC.

Compared to options such as debt recovery tribunals, public courts and asset reconstruction companies, the IBC has emerged as a viable option for banks, but even under this law, the way in which cases are being delayed may prove ineffective. Has been. At the end of the financial year 2021, it was observed that 8% of the 12 ongoing corporate insolvency resolution processes took more than 90 days to complete. Although this may be an exceptional year due to Corona, it is also a fact that such delays should not take place in the later period.

The slowdown in the corporate insolvency resolution process is making the situation more difficult for operational creditors compared to financial lenders. Operational creditors are creditors who supply goods to companies on credit. According to the data, in the last five years, operational creditors have been satisfied with only 19.50 per cent of the claims they have filed. Operational creditors have suffered a loss of Rs 2.15 lakh crore. According to experts, operational creditors are not as important in the resolution process as financial creditors.

If the corporate insolvency resolution process is completed on time, the bidders who come forward to buy the assets of defaulting companies will also have a sense of confidence and it will be easier for the lenders to get their money. While the insolvency cases in some foreign nations have been on the rise since the 2008 financial crisis, the Corona-affected India is at risk. Despite the provision to resolve cases filed under IBC within a limited time, cases are still not resolved within this period for a number of reasons. One of the reasons for this is the lack of other structures, including a sufficient number of tribunals to handle cases. As IBC completes five years, the law needs to be made more effective in the years to come, according to records so far.