The Ministry of Corporate Affairs (MCA) is in the thick of action – dealing with shell companies, crisis at IL&FS, putting the fledgling insolvency law in place, and much more. MCA Secretary Injeti Srinivas, in a discussion with Joe C. Mathew and Dipak Mondal, talks about initiatives the ministry has taken in the past one year. Edited excerpts:
Are there concrete signs that IBC (Insolvency and Bankruptcy Code) has brought positive changes?
IBC marks a paradigm shift in the approach to corporate insolvency. Under SICA (Sick Industrial Companies Act) or other resolution avenues available earlier, the borrowers continued to be in management and in control of the corporate debtor. Under IBC, the first major change is that the control shifts to the creditor as soon as the corporate insolvency resolution process (CIRP) begins. The creditor wants early resolution and maximum recovery.
Due to this shift, the entire process has been compressed. It is in the creditor’s interest to wind up the process as quickly as possible. In the SICA regime, the debtor wanted to drag the process indefinitely to retain control and delay the discharge of repayment obligations.
IBC is the most successful economic legislation in terms of impacting the behaviour of the target groups — borrowers as well as creditors. Even borrowers are now fully conscious of the fact that if the debt becomes unsustainable, they run the risk of losing the company. And if you are found guilty of mismanagement and fraud, you may lose everything, as the concept of limited liability will no longer be applicable.
How would you rate IBC’s success so far?
The most important measures of quality and effectiveness of any new law are whether it is based on international best practices or not, and how effectively it has been implemented. In the past two years, the average time taken, recovery effected and cost of resolution under IBC have seen a marked improvement over the previous (resolution) regime.
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