ICAI suggests key reforms to improve IBC effectiveness

The Institute of Chartered Accountants of India (ICAI) has proposed a series of strategic reforms to strengthen the Insolvency and Bankruptcy Code (IBC), 2016, emphasising the need for stricter adherence to timelines and improved value realization in the Corporate Insolvency Resolution Process (CIRP).

In its latest study, ICAI highlighted that while the IBC has significantly transformed India’s insolvency regime, delays in resolution and asset value erosion remain persistent challenges. As of September 2024, only 13.3% of CIRPs concluded with approved resolution plans, while 32.9% ended in liquidation, often after breaching the mandated 330-day deadline.

Recommendations for Reform

The ICAI report makes several key suggestions:

• Strict Enforcement of Timelines: It calls for adherence to the statutory 330-day limit and urges the judiciary to minimize procedural delays, which often extend well beyond this timeframe.
• Digital Infrastructure: ICAI recommends the creation of a centralized digital repository to improve transparency, reduce information asymmetry, and speed up processing times.
• Incentivizing Timely Filings: Creditors should be incentivized to file claims early to reduce bottlenecks and administrative delays during CIRP.
• Fast-Track CIRPs for Defunct Companies: The report suggests specialized mechanisms for swiftly resolving cases involving non-operational or defunct entities to avoid unnecessary resource drain. In its recent study, ICAI observed that a significant number of companies entering the Corporate Insolvency Resolution Process (CIRP) are non-operational or asset-light, often resulting in prolonged proceedings and poor value realization. To address this, the report recommends a streamlined CIRP route for defunct entities—focused on early identification, expedited timelines, and simplified procedural requirements.

Stakeholder Coordination: ICAI emphasizes the need for better coordination among creditors, insolvency professionals, and adjudicating authorities to streamline proceedings.

The study underscores the interconnectedness of time-bound resolution and value maximization. Delays, ICAI notes, not only depress asset values but also undermine stakeholder confidence.

Positioning itself as a key policy voice, ICAI hopes its data-backed recommendations will guide future reforms and reinforce India’s commitment to a robust and efficient insolvency framework.

Also See: 40 insolvency resolution cases which resulted in 100% recovery