In a move to further bolster India’s bankruptcy and insolvency regulations, the Insolvency and Bankruptcy Board of India (IBBI) has established an 11-member working group. Headed by former SEBI chief UK Sinha, their task is to delve into ‘Group Insolvency’ concepts and propose an apt course of action. This new development will supplement the existing Insolvency and Bankruptcy Code (IBC), which currently provides the procedures for resolving or liquidating individual distressed companies rather than an entire corporation.
Understanding Group Insolvency
The proposed ‘Group Insolvency’ system aims to handle and regulate the resolution or liquidation process of an entire stress-laden corporate group, which includes numerous entities within different National Company Law Tribunal (NCLT) jurisdictions. The new system would prove beneficial for cases where multiple applications are pending against debtors from the same group in the same court. In such circumstances, a debtor group or its creditors can request a combined proceeding.
Insolvency and Bankruptcy Code (IBC)
Enacted in 2016, the IBC has emerged as an effective mechanism for debt recovery in India. An RBI report recently highlighted that banks’ average recovery through the IBC stood at 41.3% in FY18. This percentage is much higher compared to other debt recovery methods like SARFAESI Act, Debt Recovery Tribunals, and Lok Adalats, which only managed a recovery rate of 12.4%.
About Insolvency and Bankruptcy Board of India (IBBI)
Established in 2016 under the Insolvency and Bankruptcy Code, IBBI is entrusted with implementing the Code. It is tasked with consolidating and amending laws pertaining to the reorganization and insolvency resolution of corporate personnel, partnership firms, and individuals. The aim is to carry out these tasks within a specified time frame and to maximize the value of such entities’ assets, promote entrepreneurship, enhance credit availability, and balance the interests of all stakeholders. IBBI regulates professions and processes, overseeing Insolvency Professionals, Insolvency Professional Agencies, Insolvency Professional Entities, and Information Utilities.
Existing Debt Recovery Laws in India
| Law | Description |
|---|---|
| SARFAESI, 2002 | Lenders can seize assets kept as security for non-repayment of loans. |
| PMLA | The Enforcement Directorate can attach proceeds of crime. |
| Recovery of Debts due to Banks and Financial Institutions Act, 1993 | A debt recovery tribunal can order the attachment of assets given as security on non-payment of dues/loans. |
Past Committees on Insolvency and Bankruptcy
This is not the first time that Sinha has been tasked with heading a committee related to insolvency and bankruptcy issues. In January 2019, the Reserve Bank of India (RBI) created an eight-member expert committee under his chairmanship. The committee was formed to identify structural bottlenecks and factors affecting the performance of Micro, Small, and Medium Enterprises (MSMEs).
