CREDIT AND STICK: NEW RESOLUTIONS

The IBC has created a new bankruptcy resolution regime, making it more creditor-driven. It has also become a 'stick' for defaulting promoters. Now, can it address delays?

- RUCHIKA CHITRAVANSHI

Sample this: Till October 2023, as many as 27,514 applications for initiation of corporate insolvency 1 resolution were withdrawn before the admission itself. These companies had an underlying default of 9.74 trillion, according to the Insolvency and Bankruptcy Board (IBBI) of India. Besides, more than a third of the corporate insolvency resolution processes that were withdrawn after admission resulted in full settlement with the creditor who had filed the insolvency application.

Indeed, though the Insolvency and Bankruptcy Code (IBC) had a sedate start in December 2016, it gathered steam the following year, with the Reserve Bank of India (RBI) coming out with a list of the 12 biggest non-performing assets (NPAs) in the country, which went on to be called the Dirty Dozen.

In the years that followed, the Code, according to experts, has created a paradigm shift, making the bankruptcy regime more creditor-driven than debtor-driven.

It has also acted as a "stick" for defaulting promoters, who often settle their debts for the fear of losing their companies - as evident in the large number of applications being withdrawn before admission.

"The IBC, being a creditor-in-control model, has largely impacted the credit culture in the country. With creditors having the stick of IBC and the existing shareholders and management having the fear of losing control, there has been a muchdesired balancing of positions in the creditor-debtor relationship in India, which is a big positive for the credit markets," says Kumar Saurabh Singh, Partner at law firm Khaitan & Co.