Best use of insolvency law is in not using it at all: IBBI chief Sahoo

NEW DELHI, May 20: Asserting that the insolvency law has brought in behavioural changes among stakeholders, IBBI chief M S Sahoo has said the best use of the Insolvency and Bankruptcy Code would be in “not using it at all”.
In a reflection of the growing importance of the Code, which has been in force for nearly one-and-a-half years, around 750 cases have been admitted by the adjudicating authority so far into the resolution process.
According to Sahoo, the inevitable consequences of a resolution process deter the management and promoter of a company to make best efforts to avoid a default.
“We have seen several instances where the corporate debtors have paid the default amount after trigger application is filed before the adjudicating authority but before its admission. Some of them pay up as soon as they receive a notice from an operational creditor,” he told PTI in an interview.
The National Company Law Tribunal (NCLT) is the adjudicating authority and a case is admitted for resolution under the Code only after its approval.
The chairperson of the Insolvency and Bankruptcy Board of India (IBBI), which is implementing the Code, said that creditors are also now more diligent in granting credit.
“The scheme of incentives and disincentives under the Code would bring in behavioural changes on the part of stakeholders of a firm which would minimise the incidence of default.
“The best use of the Code would be not using it at all,” he said.
Further, he said the Code, which is a pro-active law, has strong focus on prevention.
Nearly 750 corporate debtors, including 12 big accounts identified by the Reserve Bank of India (RBI) are under resolution process.
Sahoo said that around 125 resolution processes have completed their life cycle either with approval of resolution plans or with issuance of liquidation orders by the adjudicating authority.
A corporate insolvency resolution process has to be completed within 180 days from the date of approval by the NCLT and the deadline can be extended by up to another 90 days.
Besides, nearly 200 companies are undergoing voluntary liquidation.
Noting that the Code was in many ways, “a leap into the unknown”, Sahoo said it has brought in behavioural changes among the stakeholders, particularly debtors and creditors.
The provisions relating to the corporate insolvency resolution came into force from December 1, 2016.
Among the insolvency cases, Tata Steel has completed the acquisition of little over 72 per cent stake in bankrupt Bhushan Steel for around Rs 36,400 crore.
Bhushan Steel was among the 12 defaulter entities that were referred last year by the RBI under the insolvency law.
On Friday, Finance Minister Piyush Goyal had said that the NPA resolution process is being done through a fair and transparent Insolvency and Bankruptcy Code helping boost both the banking sector and the economy. (PTI)