A review of the implementation of the Insolvency and Bankruptcy Code (IBC) and its impact so far suggests the need for some course correction, including ensuring distinction in weightage for various categories of debtors, Reserve Bank of India Governor Shaktikanta Das said.
In recent years, the trend has been moving towards balancing the rights of operational creditors (OCs) with those of financial creditors (FCs). However, there needs to be some distinction in weightage attributed to different categories of creditors, depending upon the degree of risk absorbed, he said.
Maximum risk
“It has to be recognised that the financial creditors take the maximum risk, and hence their risk needs to be commensurately compensated and given priority. Accordingly, any amendments to the Code and its evolution thereof may continue to lay emphasis on a financial creditor-led resolution framework in an overarching manner,” Das said at the Centre for Advanced Financial Learning (CAFRAL)’s conference on the resolution of stressed assets and the IBC.
Moreover,there have been concerns regarding the conduct of the Committee of Creditors (CoC) in insolvency proceedings,including lack of participation, engagement, andeffective coordination among creditorsand disproportionate prioritisation of individual interests of creditors, which can be detrimental to the resolution plan.
Highlighting stretched timelines and delays in the resolution process, Das said that there is a need to realign the dynamics between creditors and corporate debtors. He proposed increased usage of the Pre-Packaged Insolvency Resolution Process (PPIRP)to avoid instances of promoters resorting to litigatory tacticsand to incentivise promoters to constructively engage with creditors, possibly even before the occurrence of any default event.
“This would facilitate swifter and smoother resolutions, avoiding unnecessary adversarial litigation. Overall, this could be a win-win situation for both creditors and debtors. Once this perception is established, there could be a greater acceptance of this mechanism for larger corporate debtors as well, as and when the statutory enablers are in place,” he said.
‘No clear framework’
Das pointed out the absence of a clear framework for group insolvency, saying that it is perhapstime “for laying down appropriate principles in this regard through legislative changes.” Even so, this would involve challenges such as the intermingling of assets, devising a definition of ‘Group’and addressing cross-border aspects.
