Insolvency and Bankruptcy Code (IBC), 2016

• The Insolvency and Bankruptcy Code (IBC), 2016 is a comprehensive bankruptcy law enacted to consolidate and amend existing laws related to insolvency and bankruptcy for companies, individuals, and partnership firms. 
• The code was designed to address India's mounting Non-Performing Assets (NPAs) and to streamline debt recovery mechanisms.

Key Objectives of the IBC:

• Time-bound insolvency resolution to improve recovery for creditors and prevent value erosion of assets.
• Maximization of value of assets of the debtor in a timely manner.
• Promote entrepreneurship by allowing honest businesses to exit with dignity.
• Ease of Doing Business (EoDB): IBC has significantly contributed to India's ranking in the World Bank's EoDB Index.
• Single law framework to replace multiple laws like SARFAESI Act, Companies Act (for liquidation), and others.

Key Features:

• Insolvency Resolution Timeline:
  • Corporate Insolvency Resolution Process (CIRP) must be completed within 180 days, extendable up to 330 days.
  • Personal insolvency cases are to be resolved within 180 days through the Debt Recovery Tribunal (DRT).
• Moratorium: Upon initiation of the CIRP, a moratorium is declared—putting a halt to all legal proceedings against the debtor.
• Creditor in Control: Unlike earlier laws where the debtor had control, the IBC empowers financial creditors through the Committee of Creditors (CoC) to take control of the resolution process.
• Information Utilities (IUs): These are repositories for financial data that help verify claims.
• Adjudicating Authorities:
  • NCLT (for companies and LLPs).
  • DRT (for individuals and partnerships).

Key Pillars of the IBC Ecosystem:

• Insolvency Professionals (IPs):
  • Licensed professionals who manage the entire insolvency process, including operations, asset valuation, and resolution planning.
• Information Utilities (IUs):
  • Institutions that store financial information of borrowers to ensure transparency and speed in the resolution process.
• Adjudicating Authorities:
  • NCLT for corporate insolvency.
  • DRT for personal insolvency.
• Regulator – Insolvency and Bankruptcy Board of India (IBBI):
  • A statutory body under the Ministry of Corporate Affairs.
  • Oversees IPs, IUs, and Insolvency Professional Agencies (IPAs).
  • Composed of a Chairperson and members nominated by the Central Government and RBI.

Pre-Packaged Insolvency Resolution Process (PPIRP):

• Introduced in 2021 as an amendment to the IBC.
• Aimed specifically at MSMEs for faster, cost-effective resolution.
• Initiated voluntarily by the debtor with creditor approval.
• Combines informal (pre-initiation) and formal (post-initiation) phases.
• Resolution to be completed within 120 days.

Successes of IBC:

• Improved recovery rates for banks and financial institutions.
• Reduced bad loans and helped clean up the balance sheets of banks.
• Improved investor confidence and increased foreign investment.
• Provided a structured exit mechanism for failed businesses.

Challenges Faced:

• Delays in resolution: Despite timelines, many cases exceed prescribed limits.
• Limited capacity in NCLTs/NCLATs: Leads to case backlogs and slower processing.
• Haircuts: Banks sometimes recover only a small portion of their dues.
• Complex litigation: Promoters often misuse legal loopholes to delay or derail the process.

Recent Developments:

• Amendments to improve cross-border insolvency handling.
• Strengthening of PPIRP for MSMEs.
• Greater role for homebuyers and operational creditors in the CoC.
• Introduction of electronic platforms for claim submission and auctioning of assets.