IBC: Sahoo calls for objective assessment; says market participants need to effectively play their roles

Seeking to send out a strong message to the insolvency ecosystem stakeholders, IBBI Chairperson M S Sahoo on Thursday said everyone should be responsible and play their part effectively under the insolvency law rather than always ask the state to find a solution for a market problem.

Amid concerns expressed in certain quarters about low realisation, number of companies going into liquidation and steep haircuts taken by creditors in some instances, Sahoo also pitched for a comprehensive and objective assessment of the working of the insolvency law to make prompt course corrections.

The Insolvency and Bankruptcy Code (IBC), which came into force in 2016, provides for a market-linked and time-bound resolution of stressed assets. IBC has undergone six amendments in less than five years.

Addressing a conference on the five years of IBC by industry body CII, Sahoo emphasised that the best way forward is that ''the market participants effectively play their roles as envisaged in Code... all of us should be responsible and play as per the law.'' The Insolvency and Bankruptcy Board of India (IBBI) is a key institution in implementing the IBC.

''We need a framework for a comprehensive and objective assessment (of IBC)... to stay on course, assess performance... and make prompt course corrections,'' he said.

Sahoo pointed out that a tailor-made framework for an objective assessment of the working of the IBC is necessary ''if we wish to move out from subjective views which are being presented as assessments.'' In a nearly 40-minute address, the IBBI chief mentioned about demand to make pre-packs available for large companies under IBC while stressing that the way forward should be in the market.

''Pre-packs have just been rolled out and it has hardly been used... but given that we want it for large companies, what is available is not used yet. Let us eat what is on our plate and not ask for what is in another's plate,'' Sahoo remarked.

In the pre-pack mechanism, stakeholders approach the NCLT (National Company Law Tribunal) for admission after preparing a base resolution plan. As a result, the time required for completion of the resolution process after commencement is much less.

Noting that for some absence of something is larger than the presence of many things, he said, ''Please try to find solutions in the market rather than always asking the state to find a solution for a market problem. This is not to say that the state will take a back seat.'' According to him, most of the criticisms like lower realisation, high incidence of liquidation and the time taken would be addressed to a large extent if the CIRP (Corporate Insolvency Resolution Process) is initiated early and concluded faster.

''State is doing its best.. market also has to rise to the occasion. CIRP is an orchestra where every constituent adjudicating authority, insolvency professional, CoC (Committee of Creditors), erstwhile management, resolution applicant, everybody has a role.

''If any of them does not do it or if someone goes for non-cooperation or a malafide intention, the process may not conclude in time or may not have optimum outcome,'' Sahoo said.

Against this backdrop, the IBBI chief said there should be a holistic, objective framework to assess the working of IBC and it should look at the growth, strength and efficiency of the insolvency ecosystem.

On the issue of haircuts taken by creditors, Sahoo wondered whether it is appropriate to see haircut in relation to assets available or the claims of the creditors. ''IBC maximises the value of the asset. In addition to rescuing a company, IBC realises the available options for creditors, the highest in percentage terms,'' he added.

Further, Sahoo said that realisation of 100 per cent or 50 per cent for the creditors does not anywhere reflect the working of IBC.

''It is used as a default option and we have to move away from that default option,'' he said, adding that IBC's objective is resolution.

It is not IBC but the market that makes the choice for liquidation and the Code is only an enabler. Liquidation per se is not all bad, particularly in the case of unviable businesses, he pointed out.