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Insolvency and Bankruptcy Code 2016 (IBC) - Coggle Diagram
Insolvency and Bankruptcy Code 2016 (IBC)
Context
Despite its promise, the IBC, in its functioning, has fallen short of expectations
Ministry of Corporate Affairs invited comments on a fresh set of changes it is considering to bring about in the Code
IBC has brought about a structural change in the resolution architecture
What is Insolvency?
It is essentially the state of being that prompts one to file for bankruptcy
An entity a person, family, or company becomes insolvent when it cannot pay its lenders back on time
It is a financial state of being one that is reached when you are unable to pay off your debts on time
Bankruptcy
Bankruptcy is a legal declaration of one’s inability to pay off debts
Insolvency and Bankruptcy
Code 2016 (IBC)
Establishment of an Insolvency and Bankruptcy Board of India
Insolvency professionals handle the commercial aspects of insolvency resolution process
Adjudicating authority:
National Company Law Tribunal (NCLT) for companies and LLPs
Debt Recovery Tribunal (DRT) for individuals and partnership firms
IBC provides for a time-bound process for resolving insolvencies
Covers all individuals, companies, Limited Liability Partnerships (LLPs) and partnership firms
Why the IBC introduced?
Two positive outcomes-
Liquidation
Resolution
Time bound mechanism
Increasing Non-Performing Assets
Achievements
Credit discipline
India’s rank in resolving insolvency went from 136 in 2017 to 52 in 2020
Addressing the NPA problem
Shortcomings in IBC
Average time is rising
Haircuts (debt foregone by the lender as a share of the outstanding claim)
Less realizable value
Timelines are not followed:
Proposals to address
the shortcomings
A clear distinction between the real estate projects
Changes to the manner in which proceeds will be distributed
Extending the pre-packed resolution to other firms
Optimum budgetary allocations for upskilling insolvency professionals
Removing ambiguity and bringing the predictability