What is Hurdles In Resolution Under The insolvency and bankruptcy code? (Updated Guide)

Around 300 meters from the NCLT India courts in Mumbai, you have the Kini House, with the entrance which is hard to miss and with an array of shops on the ground floor. These shops are selling cheaper electronic gadgets and even knick-knacks. This façade is mainly hidden by the construction area of the metro line in Mumbai, which is coming up. Mostly noted as an old hand working the wheels of the present NCLAT Delhi company law appellate tribunal across India, this firm is mainly the noteworthy legal counsel for some of the major Indian public sector banks.

Around two years ago, the area of the current business actually underwent a dramatic shift. The IBC or the Insolvency and Bankruptcy Code actually came right into effect in 2016 which became the preferred debt default resolution route. From there, the legal needs of the insolvent companies and lenders have changed.

More about the firm:

The firm did not waste time and quickly hired and deployed people for running the program and further upgraded the staid interiors to some modernized look. Right now, this center handles 30 of IBC briefs, which will be representing debtors, lenders and operates as resolution professional who might take charge of the insolvent firm. Most of the legal firm across the country, the accounting firms and larger audit firms along with the investment bankers and even consultants might make similar moves to just work on newer insolvency regime.

  • Within the last nine quarters, right from January 2017 to March 2019, around 1858 firms have been admitted to the field of corporate insolvency based resolution procedure of the insolvency and bankruptcy code.
  • Among this lot, around 715 ones have exited the procedures with 378 of them have been well liquidated and around 337 have withdrawn or even accepted the resolution plans.
  • Most of the latter group might have moved appellate authority, The Supreme Court and national company law tribunal India.
  • The current number of cases, which have to exit the system per quarter, has actually dropped over the period of the last two quarters.
  • While considering the 12000 odd insolvency petition, most of which are mainly admitted by the NCLT courts, and one can always gain a proper estimate of the major litigation about as unleashed by IBC.

IBC and the central promise as made:

The central promise of the bankruptcy and insolvency act was noted to be the one-time bound resolution of debt, which has gone bad and were unresolved for a longer span of time. It comprises of the corrosive effect on the investors, lenders, sentiment, and liquidity.

  • The current resolution of the insolvent companies in here will actually allow the lenders to just recover the dues partly and where possible, will salvage the parts of the company’s current business right after covering the debt obligations.
  • This procedure will further allow the firm to end up making one fresh start and with a newer set of the promoters and even enjoying one healthier balance sheet.

The current condition of the promise:

According to the bankruptcy law lawyer, the current promise as discussed earlier is likely to be under threat under the present condition. The NCLT infrastructure will prove woefully inadequate for the quantum of the cases as a flooding system. This lack of an established form of legal precedents will make litigation under IBC framework quite time-consuming and elaborate, at the same time.

  • The net result is always associated with the resolution, mainly in the marquee cases as involving some large amount of the bad debt. It is mostly taking longer time than envisaged timeline which is of 180 to 270 days.
  • Right now, the NCLT or the national company law appellate tribunal India courts are mainly starting to just resemble the courts of the metropolitan magistrate with a little bit of infrastructure and making people wonder if the government is actually a bit serious about the debt recovery.

The RBI has actually flagged IBC as the most preferred solution for the bank bad debts, by just pushing around 12 flagship cases like the Bhushan Steel, Essar Steel, and Bhushan Power and even Steel into IVC process in the June 2017. It actually followed up with another list of around 26 defaulters in October 2017. Next, on February 12th, 2018, the Apex Bank has actually recommended a mandatory push to the IBC for any for the corporate defaulter, only after banks invested 6 months to try and come up with a resolution.

Ending up with the last bit:

There are some last bits of the insolvency law in India, which will be stated as RBI’s February 12 circular, which was mainly set aside by the Supreme Court on April 2019. But, within the intervening months, most of the Indian bankers might have adopted the current RBI stance of just pushing every bad debt into IBC procedure. This procedure was meant to be serving as a deterrent and even the incentivizing prompters for paying up or just reaching out on a deal with the lenders and not quite ending up in the NCLT with the risk of just losing their firms.

Understanding the bankruptcy law in India is equally important in order to resolve all kinds of hurdles that might be placed under this norm. Research is the key in this regard and the experienced IBC lawyers are always there to guide you and serve you in the best manner possible for now.

Author Bio

Amy Jones is the expert lawyer at Ahlawat & Associates-top law firms in India. She is a passionate writer and loves to help people in all aspects of insolvency and bankruptcy law. You can follow her on Twitter, Linkedin.