Govt readies IBC 2.0 to cope with increasing challenges

Last June, when the RBI ordered banks to initiate insolvency action against a dozen companies, resolution was expected by the end of the last financial year. But a series of legal cases by powerful promoters who are set to lose control over their companies, and a battle among rivals to acquire control, have meant that only one among those cases has so far been resolved, prompting the government to deal with some of the challenges.

The biggest threat to the deadline-based approach prescribed by the Insolvency and Bankruptcy Code (IBC) has come in the form of a legal interpretation that court battles are outside the 270-day deadline prescribed by the law, something that the government is grappling with to find a solution.
Separately, based on the experience so far, the ministry of corporate affairs (MCA) is readying what many believe to be IBC 2.0. The ordinance recommended by the Union Cabinet on Wednesday was part of the plan. Next will be several changes in rules and codifying the processes, a task that has been assigned to the Insolvency & Bankruptcy Board of India (IBBI), the regulator and the development agency for IBC.

The ministry’s plan is to have detailed guidelines on every possible aspect, something akin to the Companies Act, where the process is clearly defined. “So far, the whole process was seen to be evolving but there is scope for multiple interpretations, which we want to avoid to bring about certainty and transparency,” said a source, who did not wish to be identified.

Besides, by putting in place rules, the government also wants to ensure faster decision-making as public sector bank representatives, who are members of the committee of creditors that decides on bids and liquidation, need comfort. There is already evidence of lenders shying away from deciding on a bid for Jaypee Infratech as it was seen to be below the liquidation value. “The rules will protect them from undue scrutiny by the CAG, CVC and CBI,” said a source.

As reported by TOI on May 21, the government is also considering a hybrid bidding process to usher in transparency, besides seeking to ensure better realisation for the ailing companies. #casansaar (Source - TOI)