IBC is not a panacea for all ills: MS Sahoo

The insolvency and Bankruptcy Code (IBC) enables the market with the choices of resolution but it should not be considered as a panacea for all the ills, says chairperson of the insolvency regulator MS Sahoo while emphasising that the performance of IBC code should be assessed in line with the objective of the code.

The sole objective of the Insolvency and Bankruptcy Code (IBC) is re-organisation of business, and that the IBC has recast the rules of the game in the greater interest of the economy and has contributed to economic reforms, Sahoo said while addressing a conference titled — Five Years of Bankruptcy Code and Beyond — organised by the Confederation of Indian Industry (CII) and National Foundation for Corporate Governance (NFCG) and the Insolvency and Bankruptcy Board of India (IBBI), Sahoo said that “

“We require a framework for comprehensive and objective assessment of IBBI since vested interests may not allow indication of the success of the reforms. Outcome of the IBC will be better if stakeholders start the resolution process on early signals of stress and close it expeditiously,” says the IBBI chairperson..

He further said that the IBC requires systematic and holistic assessment, which will indicate the efficacy of the resolution process and highlight the gaps in the process. Framework may include process evaluation by including the key evaluation aspects, that is, whether the process design was robust, conduct and competency of the Committee of Creditors, competency of the Insolvency Professional’s, quality disposal by NCLT etc.

He stated that if we do not have a framework for scientific assessment, market will use the parameter of assessment convenient to it.

Clearing the doubts on high numbers of companies entering liquidation, Sahoo stated that majority of the companies that entered liquidation had an average asset 6% when compared with its outstanding liabilities. In value terms, IBC has significantly contributed as companies accounting for 70% of the stressed assets have been rescued.  He stated that corporate persons are also taking measures for resolutions, to avoid defaults reaching under CIRP.

But he opines that liquidation is also good as it releases the economic resources back to economy

On the issue of high haircuts, Sahoo says that figures of claims are inflated and realisations are lower, and that if claims and realisations are adjusted to their real level, haircut figures will be lesser.

He emphasised that it’s the time to focus on framing an objective assessment framework for determining the strength and efficacy of Insolvency ecosystem, strength and efficacy of the underlying processes, strength of the market and impact on businesses. Dr Sahoo stated that right framework will provide direction for course correction.  It is also the duty of all the market participant to effectively play their role by making the best use of the available options provided by IBC for faster resolution.

Also read: IBC has helped balance the interests of different stakeholders