{"id":6948,"date":"2020-03-07T14:07:38","date_gmt":"2020-03-07T08:37:38","guid":{"rendered":"https:\/\/triumphias.com\/blog\/?p=6948"},"modified":"2020-03-07T14:07:38","modified_gmt":"2020-03-07T08:37:38","slug":"highlights-of-the-examination-by-insolvency-and-bankruptcy-code","status":"publish","type":"post","link":"https:\/\/triumphias.com\/blog\/highlights-of-the-examination-by-insolvency-and-bankruptcy-code\/","title":{"rendered":"Highlights of the examination by Insolvency and Bankruptcy Code"},"content":{"rendered":"<p><span style=\"color: #0000ff;\"><strong>Relevance: Mains: G.S paper III: Economy<\/strong><\/span><\/p>\n<p><a href=\"https:\/\/triumphias.com\/blog\/wp-content\/uploads\/2020\/03\/banckruptcy.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-full wp-image-6949\" src=\"https:\/\/triumphias.com\/blog\/wp-content\/uploads\/2020\/03\/banckruptcy.jpg\" alt=\"\" width=\"932\" height=\"582\" srcset=\"https:\/\/triumphias.com\/blog\/wp-content\/uploads\/2020\/03\/banckruptcy.jpg 932w, https:\/\/triumphias.com\/blog\/wp-content\/uploads\/2020\/03\/banckruptcy-150x94.jpg 150w, https:\/\/triumphias.com\/blog\/wp-content\/uploads\/2020\/03\/banckruptcy-300x187.jpg 300w, https:\/\/triumphias.com\/blog\/wp-content\/uploads\/2020\/03\/banckruptcy-768x480.jpg 768w\" sizes=\"auto, (max-width: 932px) 100vw, 932px\" \/><\/a><\/p>\n<p><strong>Context:<\/strong><\/p>\n<ul>\n<li>The World Bank conducts an annual examination of about 200 economies in terms of ease of doing business.<br \/>\n\u2022 The result of the examination India improved its overall ranking by 14 spots to 63 on the list, and earned a place among the world\u2019s top 10 \u2018improvers\u2019 in ease of doing business, for the third consecutive year.<br \/>\n\u2022 In terms of \u2018resolving insolvency\u2019, which reflects ease of exit from business, India\u2019s ranking improved by 56 places to 52 from 108 the previous year.<\/li>\n<\/ul>\n<p><span style=\"text-decoration: underline; color: #ff0000;\"><em><strong>Highlights of the examination by IBC:<\/strong><\/em><\/span><\/p>\n<ul>\n<li>The World Bank recognised that with the reorganisation procedure available, through the Insolvency and Bankruptcy Code, 2016 (IBC), companies have effective tools to restore financial viability, while creditors have better tools to successfully negotiate and have greater chances to realise the money.<br \/>\n\u2022 As a result, the overall recovery rate for creditors jumped from 26.5 cents on the dollar to 71.6 cents, and the time taken for resolving insolvency reduced significantly from 4.3 years to 1.6 years.<br \/>\n\u2022 India is now, by far, the best performer in South Asia on resolving insolvency and does better than the average for OECD high-income economies in terms of the recovery rate, time taken and cost of proceedings.<\/li>\n<\/ul>\n<p><span style=\"text-decoration: underline; color: #ff0000;\"><em><strong>Insolvency framework:<\/strong><\/em><\/span><\/p>\n<ul>\n<li>The World Bank measures the perception of stakeholders in respect of \u2018resolving insolvency\u2019 on two sets of indicators, namely, the strength of insolvency framework and the recovery rate.<br \/>\n\u2022 The strength of insolvency framework is a function of four indices relating to commencement of proceedings, management of firm\u2019s assets, reorganisation proceedings and creditor participation.<br \/>\n\u2022 The World Bank considers it positive if an insolvency framework enables direct liquidation of a corporate debtor (CD).<br \/>\n\u2022 The IBC enabled the committee of creditors (CoC) to decide to liquidate a CD at any time.<br \/>\n\u2022 An amendment to the IBC in August 2019 has clarified that the CoC may decide to liquidate the CD at any time during the corporate insolvency resolution process (CIRP), even before preparation of information memorandum.<br \/>\n\u2022 The Supreme Court has reiterated in November 2019 that it is for the CoC to decide as to whether to rehabilitate or liquidate the CD.<br \/>\n\u2022 As a matter of practice, the adjudicating authority (AA) allows for liquidation as and when the CoC decides so. Even at the stage of application, the AA puts the CD (eg M\/s GNB Technologies (India) Private Ltd in November 2019) under liquidation process, obviating the CIRP in the first instance.<br \/>\n\u2022 This is besides provision for direct voluntary liquidation under the IBC and liquidation under the company law.<br \/>\n\u2022 With regard to the management of the firm\u2019s assets, the IBC facilitates continued operations of the CD during CIRP.<br \/>\n\u2022 The December 2019 amendment to the IBC mandates that a license, permit, registration, quota, concession, clearance or a similar grant or right given by the Central government, the State government, a local authority, sectoral regulator or any other authority constituted under any other law to a CD shall not be suspended or terminated on the grounds of insolvency.<br \/>\n\u2022 It also requires continuation of supply of goods and services which are critical to protect and preserve the value of the CD and manage the operations of such CD as a going concern.<br \/>\n\u2022 An amendment to the IBC in August 2019 mandates that a resolution plan approved by the AA is binding on the Central government, any State government and any local authority.<\/li>\n<\/ul>\n<p><a href=\"https:\/\/triumphias.com\/blog\/wp-content\/uploads\/2020\/03\/bankruptcy.png\"><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-large wp-image-6950\" src=\"https:\/\/triumphias.com\/blog\/wp-content\/uploads\/2020\/03\/bankruptcy-683x1024.png\" alt=\"\" width=\"683\" height=\"1024\" srcset=\"https:\/\/triumphias.com\/blog\/wp-content\/uploads\/2020\/03\/bankruptcy-683x1024.png 683w, https:\/\/triumphias.com\/blog\/wp-content\/uploads\/2020\/03\/bankruptcy-100x150.png 100w, https:\/\/triumphias.com\/blog\/wp-content\/uploads\/2020\/03\/bankruptcy-200x300.png 200w, https:\/\/triumphias.com\/blog\/wp-content\/uploads\/2020\/03\/bankruptcy-768x1152.png 768w, https:\/\/triumphias.com\/blog\/wp-content\/uploads\/2020\/03\/bankruptcy.png 800w\" sizes=\"auto, (max-width: 683px) 100vw, 683px\" \/><\/a><\/p>\n<p><span style=\"text-decoration: underline; color: #ff0000;\"><em><strong>Resolution plan for corporate debtor:<\/strong><\/em><\/span><\/p>\n<ul>\n<li>The IBC envisages a resolution plan for reorganisation of a CD as a going concern.<br \/>\n\u2022 This gave the impression that the CD must continue to exist, post-resolution, limiting the possibilities of resolution.<br \/>\n\u2022 Though the contours of a resolution plan are left to the imagination of the market, the amendment of August 2019 makes it explicit that a resolution plan may provide for restructuring of the CD, including by way of merger, amalgamation and demerger.<br \/>\n\u2022 The recovery rate, as per the World Bank methodology, is a function of time, cost and outcome of insolvency proceedings.<br \/>\n\u2022 While reviving ailing firms, the resolution plans have returned about 200 per cent of liquidation value for creditors. This means that the creditors got 200 while they could have got at best 100 minus cost of liquidation, if these CDs were liquidated.<br \/>\n\u2022 The outcome should improve with the amendment in December 2019 that releases the CD from the liability arising from an offence committed under the erstwhile management prior to the commencement of the CIRP.<\/li>\n<\/ul>\n<p><span style=\"text-decoration: underline; color: #ff0000;\"><em><strong>Speed of process:<\/strong><\/em><\/span><\/p>\n<ul>\n<li>The Supreme Court attributed some delay in the law\u2019s functioning in November 2019.<br \/>\n\u2022 However, several contentious issues have been settled by the Supreme Court in the last year, bringing in certainty of the process and predictability of outcomes.<br \/>\n\u2022 In July 2019, the Bench strength of the AA has been substantially enhanced.<br \/>\n\u2022 An amendment to the IBC in August 2019 requires closure of CIRP in 330 days, including time spent on litigation.<br \/>\n\u2022 These have improved disposal by the AA significantly in the last two quarters.<br \/>\n\u2022 There has been considerable learning by every element of the ecosystem in the last three years.<br \/>\n\u2022 The resolution process is now institutionalised, standardised and professionalised, which should translate to reduced cost of process.<br \/>\n\u2022 The Graduate Insolvency Programme launched in July 2019 should take the insolvency profession to the next level.<br \/>\n\u2022 Given the efficacy of the IBC, it has become the preferred mode for the insolvency resolution of a CD. This explains huge rush of applications for insolvency resolution in the last three years, even though the stakeholders are being advised to use the Code as the last resort.<\/li>\n<\/ul>\n<p><span style=\"text-decoration: underline; color: #ff0000;\"><em><strong>Way forward:<\/strong><\/em><\/span><\/p>\n<ul>\n<li>The work has begun in right earnest to add several value-added features to insolvency framework.<br \/>\n\u2022 These include cross-border insolvency, group insolvency, individual insolvency, valuation profession, market for distressed assets, automation of loan contracts, resolvability of companies, etc.<br \/>\n\u2022 The authorities remain committed to address deficiencies arising from implementation of the IBC, in sync with the emerging market realities.<br \/>\n\u2022 India\u2019s performance in resolving insolvency should improve further, though the road to success will always remain under construction.<\/li>\n<\/ul>\n<p><span style=\"color: #0000ff;\"><strong>For more such notes, Articles, News &amp; Views Join our Telegram Channel.<\/strong><\/span><\/p>\n<p><span style=\"color: #ff0000;\"><a style=\"color: #ff0000;\" title=\"Telegram Link\" href=\"https:\/\/t.me\/triumphias\" target=\"_blank\"><strong>https:\/\/t.me\/triumphias<\/strong><\/a><\/span><\/p>\n<p><strong><span style=\"color: #0000ff;\">Click the link below to see the details about the UPSC \u2013Civils courses offered by Triumph IAS. <\/span><span style=\"color: #ff0000;\"><a style=\"color: #ff0000;\" title=\"courses available\" href=\"https:\/\/triumphias.com\/pages-all-courses.php\">https:\/\/triumphias.com\/pages-all-courses.php<\/a> <\/span><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Relevance: Mains: G.S paper III: Economy Context: The World Bank conducts an annual examination of about 200 economies in terms<\/p>\n","protected":false},"author":1,"featured_media":3299,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_exactmetrics_skip_tracking":false,"_exactmetrics_sitenote_active":false,"_exactmetrics_sitenote_note":"","_exactmetrics_sitenote_category":0,"footnotes":""},"categories":[42,43],"tags":[392],"class_list":["post-6948","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-general-studies-iii-technology-economic-development-bio-diversity-environment-security-and-disaster-management","category-indian-economy","tag-union-public-service-commission-upsc"],"amp_enabled":true,"_links":{"self":[{"href":"https:\/\/triumphias.com\/blog\/wp-json\/wp\/v2\/posts\/6948","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/triumphias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/triumphias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/triumphias.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/triumphias.com\/blog\/wp-json\/wp\/v2\/comments?post=6948"}],"version-history":[{"count":1,"href":"https:\/\/triumphias.com\/blog\/wp-json\/wp\/v2\/posts\/6948\/revisions"}],"predecessor-version":[{"id":6951,"href":"https:\/\/triumphias.com\/blog\/wp-json\/wp\/v2\/posts\/6948\/revisions\/6951"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/triumphias.com\/blog\/wp-json\/wp\/v2\/media\/3299"}],"wp:attachment":[{"href":"https:\/\/triumphias.com\/blog\/wp-json\/wp\/v2\/media?parent=6948"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/triumphias.com\/blog\/wp-json\/wp\/v2\/categories?post=6948"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/triumphias.com\/blog\/wp-json\/wp\/v2\/tags?post=6948"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}