Finetuning the Insolvency and Bankruptcy Code

Source: The post is based on the article Finetuning the Insolvency and Bankruptcy Code” published in The Indian Express on 24th January 2023.

Syllabus: GS 3 – Economic Development

Relevance: proposals to make changes in IBC, 2016

News: The Insolvency and Bankruptcy Code (IBC), 2016 was brought with the aim to bring structural change in the resolution architecture in the country. However, it has not lived up to the expectations.

What are the problems with IBC, 2016?

According to a recent data, the total realisable value of the cases resolved till September 2022 was only 30.8 per cent of the admitted claims. The data also shows that 64 per cent of the ongoing cases have crossed 270 days.

As per reports, the average time taken for cases to be resolved has risen and more time being spent on associated litigation.

In order to address these issues, the government has come up with proposals to bring changes in the IBC, 2016.

What are the different proposals for changes in IBC, 2016 made by the government?

The proposal – a) aims to reduce the time for admitting cases and streamline the process by a greater reliance on data from Information Utilities, b) it seeks to remove ambiguity and bring predictability in the process, c) aims at extending the pre-packaged insolvency resolution process that was introduced for MSMEs to other firms, d) seeks to address some of the issues that have arisen in the resolution of real estate firms, e) seeks to change the manner in which proceeds will be distributed, i.e.; creditors will receive proceeds up to the liquidation value as prescribed under section 53 of the Code.

And any surplus over such liquidation value will be distributed between all creditors in the ratio of their unsatisfied claims.

These proposals aim at bringing changes in the IBC, 2016. However, any such change should be with the objective of improving its functioning and outcomes.

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