RBI governor reaffirms primacy of financial creditors over operational creditors in IBC
RBI governor Shaktikanta Das has reaffirmed the primacy of financial creditor in the Insolvency and bankruptcy process. In his keynote address at the Conference on Resolution of Stressed Assets and Insolvency and Bankruptcy Code (IBC) organised by the Centre for Advanced Financial Learning (CAFRAL) in Mumbai, the RBI governor said it has to be recognised that the financial creditors take the maximum risk and hence their risk needs to be commensurately compensated and with priority.
He, therefore, said that any amendments to the Code and its evolution thereof may continue to lay emphasis on a financial creditor-led resolution framework, in an overarching manner. He highlighted the trend in recent years towards balancing the rights of Operational Creditors (OCs) with those of Financial Creditors (FCs) under the Code.
“While the focus on ensuring equity among all stakeholders may be appreciated, there needs to be some distinction in weightage attributed to different category of creditors, depending upon the degree of risk absorbed ab initio,” said Das in his address.
He also stressed that the success of the Code is linked to an active involvement of the Committee of Creditors (CoC) in driving the resolution process forward.
The CoC has a fiduciary responsibility to safeguard the interests of all stakeholders, he says pointing out that on several occasions, the Adjudicating Authorities (AA) have raised concerns regarding the conduct of the CoC in the insolvency proceedings.
“This includes lack of participation in the CoC meetings; lack of engagement or effective coordination among creditors; disproportionate prioritisation of individual interest of creditors rather than their collective interest while designing the resolution plans which can be detrimental to the resolution plan itself, etc,” said the governor.
Das in his address also raised the issue of delay in resolution of cases. He says that the data published by the insolvency regulator on timing of resolution raises certain serious concerns.
“As of September 2023, 67% of the ongoing CIRP cases have already crossed the total timeline of 270 days including possible extension period of 90 days. More concerning is the fact that, the average time taken for admission of a case during FY 2020-21 and FY 2021-22 stood at 468 days and 650 days respectively. Such long degree of delays will substantially erode the value of the assets,” he said.
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