The Insolvency and Bankruptcy Code (IBC) aims to balance the rights of creditors and debtors by shifting control to creditors during insolvency proceedings, prioritizing resolution over liquidation, and establishing a structured framework for efficient and timely resolution. While the IBC has significantly improved the debt resolution landscape in India, there are ongoing debates about its effectiveness in completely balancing the interests of all stakeholders, particularly concerning the time taken for resolution and the value realized by creditors.
Strengths of the IBC in Balancing Rights:
Creditor-in-Control Model:
The IBC shifts control from the debtor to the creditors, allowing them to drive the resolution process and potentially recover a greater portion of their dues, according to the Bank for International Settlements.
Time-Bound Resolution:
The IBC mandates a time-bound process for insolvency resolution, aiming to prevent further deterioration of a company's value and ensure a more efficient recovery for creditors.
Prioritization of Resolution:
The Code emphasizes resolution over liquidation, aiming to preserve the business as a going concern and maximize value for all stakeholders.
Protection of Operational Creditors:
The IBC outlines a priority of payment for operational creditors and workmen, ensuring their interests are also considered, according to Agrud Partners.
Establishment of IBBI:
The Insolvency and Bankruptcy Board of India (IBBI) oversees the insolvency process, providing a structured framework and promoting professionalism.
Areas for Improvement:
Time Delays:
Despite the time-bound framework, some cases, particularly those involving larger companies, still face significant delays, impacting the value realized by creditors and potentially hindering the resolution process.
Value Realization:
While resolution is prioritized, there are instances where the amount realized through resolution is less than what could have been achieved through liquidation, raising concerns about the effectiveness of the process in maximizing value for creditors.
Balancing Competing Interests:
The IBC aims to balance the interests of various stakeholders, but disputes and delays can arise in determining the priority of claims and distributing assets among different creditor classes.
Pre-Packaged Insolvency:
While the pre-packaged insolvency process is tailored for MSMEs, ensuring its effectiveness and wide adoption remains a challenge. N