The Insolvency and Bankruptcy Code, 2016 popularly known as IBC was made due the immense legal delay and piling up of cases with regards to commercial bankruptcy. It was made to resolve the issue of non-payment/ insolvency of any company or an individual by giving powers to the creditors to take charge over the assets of the defaulter or opt for a resolution plan. It is a time bound statute and provides for a period of limitation for completion of resolution, disposal of cases and liquidation.
The Code provides for immediate suspension of the powers of the promoter or the Board of Directors of the company and vests power with the insolvency professional/ resolution professional to take any decisions of the corporate debtor. One of the major provisions is that it provides for a ‘stand-still’ period, whereby all the stakeholders shall discuss and come to an agreed common resolution plan. It also provides for a waterfall mechanism in the event of liquidation.
The 2019 bill has introduced few key amendments to the act of 2016, which are explained briefly.
Challenges to IBC:
- While on one hand the operational creditors have been given an equal right of access to minimum payouts, on the other end, the financial creditors may be affected by the same thus making a few of the financial creditors wary of further issue of loans.
- The new deadline of 330 days is not applicable to the court and hence not viable.
- The code provides for funds but is ambiguous regarding the manner it shall be utilized.
- With vesting of more powers on the creditors, they may often opt for liquidation rather than restricting since the former results in immediate relief.
- Many a times there is an overlapping or ambiguity in judicial jurisdiction and decisions are often overlapped or stayed by judicial forum either with concurrent or overlapping jurisdiction.
- The pro-revival mechanism envisaged in the code may sometimes just delay the shutting down of a non-viable company.
- Adding to all this, the absence of adequate data with regards to the credibility of the assets makes it difficult for the purposes of accounting.
Key highlights from the recent Essar Steel judgment: