Challenges to Insolvency Bankruptcy Code (IBC)

Challenges to Insolvency Bankruptcy Code (IBC)

Challenges to Insolvency Bankruptcy Code - Insolvency Resolution Process

Some challenges to the IBC process faced by professionals are as follows:                                 

The proposed Ordinance suspending filing of fresh insolvency under IBC for six months will have to consider allowing existing companies to do their own restructuring under IBC in the present environment.

There is no sense to restrain (preventing) a corporate debtor who is struggling to start insolvency under the Code. Suspending provisions of IBC without changing the circular issued by the RBI of June 2019 will not help.

A proper consultation with RBI and other stakeholders should be initiated.  Just as financial & operational creditors can initiate the IBC process on a company, the Insolvency & Bankruptcy Code allows the corporate debtor to go for self-insolvency.

Another challenge is whether IBC should continue for borrowers who defaulted before 1st March, 2020. 

Another challenge is should it be for those where banks have reached an inter-creditor agreement. Whether the moratorium period should be considered under IBC. The moratorium & lockdown happened in March, there are borrowers who suffered due to supply chain disruption in February or January 2020 is also another challenge to IBC.

All these issues will have to be dealt with before the Government passes an ordinance for amending IBC to take care of stress caused by COVID- 19. The issue of individual insolvency in IBC is connected with the invocation of corporate guarantees.

On this matter, consultation would have to be done with the respective state government as personal/ individual bankruptcy is a subject on which states can also make law. If IBC is deferred & a one-time loan restructuring window is not offered, then there will be no proper resolution path left for companies.


Leave a Reply

Your email address will not be published. Required fields are marked *