Parliamentary Panel Proposes Action Plan for IBC Improvement

The Insolvency and Bankruptcy Code (IBC) has been reform in India’s corporate landscape. However, it faces challenges that hinder its effectiveness. Recently, a Parliamentary Panel on Finance, chaired by Bhartruhari Mahtab, proposed a four-point action plan to enhance the IBC’s outcomes. This comes as stakeholders express concerns regarding the confidentiality and fairness of resolution plans under the current system.

Background of the Insolvency and Bankruptcy Code

The IBC was enacted in 2016 to address corporate insolvency in India. It aimed to provide a time-bound process for the resolution of distressed assets. Despite its potential, the IBC has struggled to achieve its objectives fully.

Key Challenges Identified

The Parliamentary Panel brought into light several ongoing challenges within the IBC process. These include: – Conflicts of Interest – Stakeholders may have competing interests during the resolution process. – Lack of Transparency – Opacity in procedures can lead to unfair advantages. – Delays in Resolution – Prolonged timelines can exacerbate financial distress. – Weak Monitoring of Resolution Professionals – Ineffective oversight can undermine the process. – Limited Representation of Operational Creditors – Operational creditors often lack sufficient voice in decision-making.

Proposed Four-Point Action Plan

To address these challenges, the Panel recommended a four-point action plan: 1. Direct Submission System – Establish a central online portal for resolution plan submissions. This system aims to ensure confidentiality and fairness in submissions. 2. Enhanced Role of Resolution Professionals – Strengthen accountability through rigorous certification, training, and independent performance reviews for resolution professionals (RPs). 3. Transparent Monitoring – Implement a structured mechanism to track resolution timelines. This includes a tabular system to identify delays and inefficiencies. 4. Review of Committee of Creditors Structure – Reassess the CoC to ensure operational creditors have adequate representation in the resolution process.

Significance of the Recommendations

The recommendations aim to create a more equitable environment for all stakeholders involved in the insolvency process. By enhancing confidentiality and accountability, the proposed changes seek to improve the overall efficiency and effectiveness of the IBC.

Expert Opinions

Experts like Daizy Chawla have commented on the need for these reforms. They argue that despite the IBC’s establishment nearly a decade ago, it has not fully addressed the issue of stressed assets. The effectiveness of these recommendations hinges on the implementation of compulsory procedures and timelines.

Future Implications

If implemented, the proposed action plan could alter how corporate insolvency is managed in India. It has the potential to restore confidence among stakeholders and improve the resolution of distressed assets.

Questions for UPSC:

1. Critically analyse the impact of the Insolvency and Bankruptcy Code on corporate governance in India.
2. What are the implications of conflicts of interest in corporate insolvency? Explain with suitable examples.
3. What is the role of operational creditors in the insolvency process? How can their representation be improved?
4. Comment on the importance of transparency in the resolution process under the Insolvency and Bankruptcy Code.

Answer Hints:

1. Critically analyse the impact of the Insolvency and Bankruptcy Code on corporate governance in India.

1. Introduced in 2016 to streamline corporate insolvency, enhancing accountability and governance.
2. Promotes timely resolution of distressed assets, reducing prolonged financial distress.
3. Encourages responsible management practices by imposing strict timelines and procedures.
4. Fosters stakeholder confidence through a structured legal framework for insolvency resolution.
5. However, challenges like lack of transparency and representation can undermine governance effectiveness.

2. What are the implications of conflicts of interest in corporate insolvency? Explain with suitable examples.

1. Conflicts of interest may lead to biased decisions favoring certain stakeholders over others.
2. Example – A resolution professional may prioritize their own financial interests over fair resolution.
3. Can result in unfair advantage for creditors with closer ties to decision-makers, compromising integrity.
4. Hinders equitable treatment of all creditors, affecting the overall resolution process.
5. Addressing conflicts is crucial for maintaining trust and fairness in the insolvency framework.

3. What is the role of operational creditors in the insolvency process? How can their representation be improved?

1. Operational creditors provide essential goods and services, critical for business operations.
2. Currently, they often have limited influence in the decision-making process during insolvency.
3. Improved representation can be achieved by revisiting the Committee of Creditors (CoC) structure.
4. Increased voice can lead to more balanced resolutions, benefiting overall corporate health.
5. Ensuring operational creditors’ interests are considered can enhance the effectiveness of the IBC.

4. Comment on the importance of transparency in the resolution process under the Insolvency and Bankruptcy Code.

1. Transparency encourages trust among stakeholders, ensuring fair treatment throughout the process.
2. Reduces the risk of corruption and favoritism, promoting equitable outcomes for all creditors.
3. Clear visibility into resolution timelines and procedures can enhance accountability of resolution professionals.
4. Supports informed decision-making by all parties involved, improving overall resolution efficiency.
5. Implementation of structured monitoring mechanisms can enhance transparency in the process.