Govt considers automatic route for creditors in IBC to speed up resolution

Such a move requires strengthening of information utility system: Official

In order to expedite the admission of insolvency resolution cases, the government is considering making the process automatic — for the financial creditors (FCs) to begin with. However, a senior government official said while this is the intent, such a move requires strengthening of the information utility (IU) system under the Insolvency and Bankruptcy Code (IBC).
 
“Cases under Section 7 of the IBC should be able to go through an automatic route. The IU has to enable it. Then, the National Company Law Tribunal (NCLT) does not have to sit over admission,” said the official.
 
The IU is a repository of legal evidence for information regarding any debt or claim, submitted by the financial or operational creditor and verified and authenticated by the parties to the debt.
 
The national e-governance service is India’s first IU registered with the Insolvency and Bankruptcy Board of India (IBBI) under the IBC. One of its main objectives is time-bound resolution by providing verified information to creditors and to adjudicating authorities.
 

The IBC was amended to introduce a deadline for the admission of corporate insolvency applications within a fortnight. In practice, however, it takes months for applications to be admitted. This is one of the reasons for delay in the process, which then leads to deterioration in the valuation of assets.
 
According to a research paper on Assessment of Corporate Insolvency and Resolution Timeline by Neeti Shikha and Urvashi Shah, the average number of days taken for admission of applications under the corporate insolvency resolution process (CIRP) is 133 days. A survey response by resolution professionals showed that 74 per cent of them believe it takes more than 90 days for initiating a CIRP.
 
“A haircut, too, is linked to how quickly a case is admitted. The management may have a perverse incentive to divert and strip the assets of the company. That’s why the admission has to be fast,” added the official.
 
The corporate affairs ministry is also discussing if there is a need to have a management information system to keep track of the ageing of cases under IBC.
 
While delays in IBC are also due to insufficient capacity of the NCLT Benches, industry experts say at the admission stage, the adjudicating authority often holds hearings to establish the default itself.
 
“The NCLT should not have to sit over commercial wisdom. That is why the IU system needs to be taken more seriously,” said an industry expert.
 
IBC practitioners say that IU has not taken off as expected but could be a game-changer in achieving timelines.
 
“IU was conceptualised under IBC and will go a long way in making admission of cases faster under the CIRP process. Submitting records of debtors with IU can help creditors in validating default in a time-bound manner and avoid any dispute at a later stage,” said Rajiv Chandak, partner, Deloitte India.
 
He also said that in the developed markets, a moratorium is extended from the date of application of the insolvency, making admission to insolvency a swift process.