Insolvency procedure benefits creditors, but concerns remain, say lenders

Creditors say they realise that the insolvency process it is not just recovery legislation for lenders, but an effective resolution mechanism for corporate debtors

Even as the implementation of the Insolvency & Bankruptcy Code has changed not only the economic scenario but also the outlook of both creditors and the debtors, there are certain concerns that have to be addressed including the delay in admission of cases, lack of bidders, and disparity in valuation, say bankers. In a workshop organised by Insolvency and Bankruptcy Board of India (IBBI) on 'Committee of Creditors - An Institution of Public Trust', these issues were highlighted.

Padmaja Chunduru, MD & CEO, Indian Bank raised concerns over delays in admission of cases, the minimum default amount of Rs 1 lakh which remains to be enhanced, primacy of secured creditors over others, maximisation of value of assets, and the balancing of interests of all stakeholders. She asked for trusts/societies to be brought within the ambit of the IBC for the resolution of defaulting educational institutions. The mere threat of being referred to the National Companies Law Tribunal (NCLT) is bringing defaulters to negotiation table, she added.

Another issue that came up in the discussions was that in some cases, even if all the conditions were fulfilled, the application was still dismissed by looking at the company's balance sheets. In some instances, other motives were ascribed behind moving an application. This is an issue that needs to be addressed and it was suggested that the NCLT should consider limiting its roile. The issue of out-of-court settlement between creditors and debtors was also discussed. Under the present insolvency regime, a settlement can be carried out only after making an application of withdrawal under Rule 8 of the Insolvency and Bankruptcy (Application to Adjudicating Authority Rules), 2016 before the admission of the application by the adjudicating authority.

A spree of amendments shows that the system and procedures for the effective resolution of a debt-ridden company evolves continuously. Several orders and judgements, including the Supreme Court's, have paved the way for a near satisfactory implementation of the Code.

M S Sahoo, chairperson, IBBI said that companies which are viable should be rescued and an effective resolution plan must be put in place thatbenefits all stakeholders. He said that 30 new judicial members have been appointed for the speedy disposal of pending cases. 

It was agreed that the NCLT experience has been more or less smooth. Creditors said they realise that the insolvency process it is not just a recovery legislation for lenders unlike SARFAESI Act or the Recovery of Debts Act, but an effective resolution mechanism for corporate debtors. 

They said that 30 per cent of the cases that were undergoing resolution, as on September 2018, have already exceeded the 270-day time limit and their resolution is still underway, contrary to the legal mandate that a company's liquidation should commence on exceeding the deadline.