Insolvency and Bankruptcy Code (IBC)
The passage of the Insolvency and Bankruptcy Code (IBC), 2016 is one of the biggest insolvency reforms in the economic history of India. It was introduced by the Central Government to sort out claims related to the insolvent companies in the country.
Why was the IBC needed?
- The IBC 2016 was needed to tackle the bad loan problems are currently plaguing the banking system.
- It was enacted to ensure the reorganization and faster insolvency resolution of the corporate persons, partnership firms and individuals in a faster time-bound manner for maximization of the value of assets from the defaulters.
- IBC established a shift from the existing ‘Debtor in possession’ to a ‘Creditor in control’ regime.
- It has consolidated all existing insolvency-related laws as well as amending multiple legislation including the Companies Act.
- Finally, the code aims to resolve most insolvencies in a strict time-bound manner with the evaluation and viability determination of insolvency to be completed within 180 days.
What changed after IBC?
- The passage of the IBC has changed the debtor-creditor relationship and has helped resolve a number of major financial cases in two years since its passage.
- Several other cases also are in advanced stages of resolution.
- 4452 cases were dismissed at the pre-admission stage showing the effectiveness of IBC.
- At present, there are 1332 cases before NCLT.
- Banks have recovered Rs 5.28 lakh crore in 2017-18, compared to just Rs 38500 cr in 2016-17.
Why is it in the news?
The Union Cabinet, on 17th July 2019, has cleared seven amendments to the Insolvency and Bankruptcy Code (IBC). These amendments aim to not only fill the critical gap in the corporate insolvency resolution framework but also maximize the value from the resolution process.
It is expected that these amendments will enable the government to maximize recovery from a debtor while adhering to the deadlines in place.