Has IBC had any impact? Here’s what IBBI has to say

IBBI Chairperson said that because of IBC, the repayment of debt is no longer an option, it is an obligation as tolerance for default has disappeared

Hongkong: The Chairperson of Insolvency and Bankruptcy Board of India (IBBI), Dr MS Sahoo, has said that resolution plans under Insolvency and Bankruptcy Code (IBC) have yielded 200 percent of liquidation value for creditors, in addition to rescuing viable firms. "They are realising, on an average, 45 percent of their claims through resolution plans under the Corporate Insolvency Resolution Process (CIRP), which takes on average 300 days and entails a cost on average of 0.5 percent. This is significantly better as compared to the previous regime which yielded a recovery of 25 percent for creditors through a process which took about 5 years and entailed a cost of 9 percent," said Dr Sahoo.

'Repayment of debt no longer an option, it's an obligation'

Speaking at the FICCI-IBBI-CGI-HK Conference on IBC at Hong Kong, Dr Sahoo said that the repayment of debt is no longer an option, it is an obligation as tolerance for default has disappeared. He said, "A stakeholder may initiate CIRP of the firm when it fails to service its debt for the first time. If the process is initiated, the Code shifts control from the debtor to creditors for resolution of insolvency. Through the process of resolution, the ownership often shifts to third parties. Thus, ownership of a firm is no more a divine right and equity is no more the only route to own a company."

Dr Sahoo added that the creditors also need to explain to themselves and their stakeholders why they initiated an insolvency proceeding or why they did not, in case of a default. Consequently, there would never be a high-value default if this law exists in the statute book.

What does SBI have to say about it?

Anshula Kant, MD, SBI added that bankers' approach to resolution and recovery has been renewed under IBC. Promoters' behaviour has also changed, and they are reaching out to bankers to resolve their stressed assets. In turn, bankers are open to offering flexibility in genuine cases where the entity has been a victim of circumstances and not guilty of gross negligence or mismanagement, added Kant.

She also explained that banks have converted debt into equity in businesses facing real problem and lauded IBC for helping it take off stressed assets from SBI's balance sheet. "The rapidity of changes in the IBC legislation shows the responsiveness of the government and regulator," said Kant.