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Mint
09-07-2025
- Business
- Mint
Insolvency board makes it mandatory to list fraudulent trades in sale prospectus
New Delhi: Administrators of bankrupt businesses must mandatorily disclose all dubious transactions carried out by a company's management while preparing its sale prospectus under the bankruptcy code, the Insolvency and Bankruptcy Board of India (IBBI) has said. The regulator's latest amendment to the Insolvency Resolution Process for Corporate Persons states that corporate restructure plans prepared by administrators appointed by creditors should only account for recovery from questionable deals and trades made by previous management that have been fully disclosed in the sale prospectus, known as the information memorandum. The move aims to improve transparency in debt resolution processes and enable better price discovery. The regulations proposed enhanced disclosures in the prospectus to include details of all identified avoidance transactions or fraudulent and wrongful trading. Avoidance transactions are questionable deals carried out by the management before the company's admission in a tribunal for debt resolution. It includes siphoning off funds and questionable related party transactions. 'Further, the resolution professional is required to keep the information memorandum updated and provide the same to the committee of creditors (CoC) periodically,' the amended regulations said. The new norms also say debt resolution plans should not assign the value of any avoidance transaction unless it was disclosed in the prospectus and was intimated to all the prospective investors before the last date for submission of their bids. 'These amendments aim to facilitate informed decision-making by the committee of creditors as well as the resolution applicants, leading to better price discovery and maximization of value for the assets of the corporate debtor,' IBBI stated. Avoidance transactions, when reversed, enable value recovery from alienated assets, explained Anoop Rawat, senior partner (insolvency and bankruptcy) at law firm Shardul Amarchand Mangaldas & Co. 'Disclosing such transactions in the information memorandum enables all stakeholders to assess the potential for recovery. It will help to draw up better corporate rescue plans,' said Rawat. 'If it is not disclosed in the memorandum, it cannot be part of the resolution plan and any eventual recovery may go to the creditors, as per the amended regulations. There is, however, need for an enabling provision in the regulations for offering continued support to the successful bidder and the company to make recovery from such transactions.' 'Disclosing such transactions in the information memorandum enables all stakeholders to assess the potential for recovery and give a realistic proposal for the such transactions. It will help to draw up better corporate rescue plans,' said Rawat. 'The IBBI has prescribed that If it is not disclosed in the memorandum, it cannot be part of the resolution plan (apparently for lack of proper evaluation and valuation), and any recovery may go to the creditors, as per the amended regulations. There is, however, need for an enabling provision in the regulations for mandating continued support by the corporate debtor and resolution applicant for pursuing recovery from such transactions through intervention of adjudicating authority,' said Rawat. The move seeks to enhance transparency and accountability under the debt resolution process, said Yogendra Aldak, partner at Lakshmikumaran and Sridharanattorneys. 'Mandatory disclosure of avoidance transactions, with an additional requirement to ensure the same is subsequently updated, will ensure that resolution applicants can have a more realistic outlook of the financials of the corporate debtor,' said Aldak. "While we have witnessed resolution applicants treating the amounts under avoidance transaction as bad debts, even ascribing notional values such as ₹ 1 it is likely that in a competitive resolution process, prospective applicants are able to utilize these updated disclosures under the information memoranda resulting in higher recoveries for creditors,' Aldak added.
Mint
01-07-2025
- Business
- Mint
Debt resolution plans see uptick in June quarter, as NCLT vacancies are filled
New Delhi: Creditors rescued 69 indebted businesses in the June quarter through the Insolvency and Bankruptcy Code (IBC) route, improving upon resolutions in the year-ago period but falling a tad lower sequentially, showed official data. In the June quarter of FY25, 58 sick companies were salvaged by their creditors and new investors, showed data available from the Insolvency and Bankruptcy Board of India (IBBI), the sector's rule-maker. The improvement comes in the wake of the government filling vacancies in the National Company Law Tribunal (NCLT)—the judicial authority that clears debt resolution schemes under the bankruptcy code. As of March this year, it had 60 members out of 63 sanctioned posts, data available from the tribunal showed. That is a major improvement, given that at the end of September 2024, the tribunal had only 43 members, or 30% short of its sanctioned strength, Mint reported on 6 December. The number of debt resolutions achieved in the June quarter, however, is a tad below the 75 resolutions reported in the March quarter of FY25. On an average, 62 cases were resolved in a quarter in FY25, with 247 companies getting their restructure plans approved in the full year, IBBI data showed. Experts said debt resolutions in the recent past have actually improved. 'While the quarter-to-quarter trend may not provide a consistent uptick in the resolutions under the IBC, it is interesting to note that as of December 2024, 60% of all resolution plans approved under the IBC had been approved over the preceding three years. Here, it must also be highlighted that an additional 30,000 cases were settled at the pre-admission stage during the same period," said Yogendra Aldak, partner at Lakshmikumaran and Sridharanattorneys. Corporate debt resolution under the IBC came into force in December 2016. Separately, the ministry of corporate affairs said in its monthly newsletter for May that increased institutional capacity and reduced litigation can help improve the outcomes of debt resolution efforts. Better training and support for insolvency professionals, streamlining procedures and enhancing effectiveness of the committee of creditors, which decides on the future of distressed companies, are important areas for future focus, the ministry stated. Experts also believe legislative and administrative changes will help in improving debt resolution outcomes. 'While these provide an optimistic outlook for the future of resolutions in India, the process continues to be hindered by several procedural and institutional hurdles. In order to achieve a truly reliable and efficient resolution mechanism, both legislative policy and administrative practices will have to be re-evaluated in order to successfully tackle the present challenges," Aldak said. Experts said the recruitment of new members in NCLTs has borne fruit. 'It is imperative that the NCLT functions at full strength so that there are no delays in plan approval. Delays in plan approval may lead to further complications such as bidders expressing inability to execute due to passage of time," said Madhav Kanoria, partner at law firm Cyril Amarchand Mangaldas. A few members are set to retire and it is expected that the government will fill the vacancies sooner than later so that matters are disposed of expeditiously, added Kanoria.
Mint
20-06-2025
- Business
- Mint
IBC's weak spot: Slow, difficult recovery from dubious pre-bankruptcy deals
New Delhi: Companies on the brink of collapse tend to do certain transactions that benefit the promoters or close partners but are detrimental to the organization and its creditors. While such 'dubious transactions' can later be set aside during bankruptcy proceedings by tribunals, getting the money back is proving an uphill task. Data from regulator Insolvency and Bankruptcy Board of India (IBBI) reviewed by Mint showed that in FY25, just ₹1,322 crore or a tenth of the amount involved in 'avoidance transactions' disposed of by tribunals were recovered. And overall, just 12% of the ₹65,650 crore worth voidable deals executed by promoters and management of 368 companies–and where tribunals have given their verdict–were recovered, according to IBBI. Such deals could include paying off a friendly creditor just before bankruptcy proceedings while ignoring others, moving assets to related parties or hiding them, selling assets for less than they're worth, or taking loans on unfair or excessive terms. Also read | A series of court orders changed bankruptcy rules. Now, the govt is amending the law 'There is often misconduct by earlier management pre-insolvency and it might be a reason for the insolvency in some cases," said Dhananjay Kumar, partner (head-insolvency and restructuring) at law firm Cyril Amarchand Mangaldas. 'Recovery of such amounts is a fundamental function of a law like IBC (Insolvency and Bankruptcy Code)," added Kumar. Other challenges pointed out by Kumar include lack of data to challenge these transactions, lack of funds with resolution professionals, and slow movement in National Company Law Tribunal (NCLT). The matter assumes significance because money recovered from dubious transactions adds to the pool of resources available for a corporate restructure plan. According to IBBI's estimates, on a conservative scale, a decision on avoidance transactions by tribunals would add recovery to creditors by at least 10%. Yogendra Aldak, partner at Lakshmikumaran and Sridharan Attorneys, said the high amounts being flagged as avoidance transactions highlight an alarming trend of promoters deliberately using such transactions 'to deprive a company of its resources for self-serving purposes leading to a snowball effect during times of stress". Read this | Scrapping a key bankruptcy rule may yield faster liquidation, better recovery Further, Aldak said IBC has not been designed as a debt-recovery machine and, instead, prioritises resolution of distressed companies. So, to avoid delays in rescuing businesses, taking decisions on avoidance transactions has been kept independent of corporate debt resolution. However, this makes it hard to recover money from avoidance transactions. For example, only deals made within two years before the insolvency process can be reviewed, which means many questionable transactions are never examined, Aldak explained. Another problem, he said, is tracking the money, as it is often moved through shell companies or hidden in other countries, making recovery even harder. Anisha Jhunjhunwala, senior consultant-IBC at NPV Insolvency Professionals Pvt. Ltd, said that despite clear evidence, enforcing clawbacks from avoidance transactions is a lengthy legal battle, with promoters delaying proceedings through litigation, and tracing diverted assets is complex, especially when routed through layers of related entities or parked overseas. Also read | NCLT member crunch slows down bankruptcy resolution 'The high quantum of flagged transactions reflects serious lapses and, in some cases, wilful misconduct by promoters, particularly during the twilight period before insolvency," said Jhunjhunwala. 'It shows that promoters, anticipating distress, often prioritize asset stripping over stakeholder interest, highlighting the need for stricter pre-insolvency oversight and faster adjudication timelines." The fact that it often takes considerable time for a bankruptcy petition by a creditor to be admitted in a tribunal only allows more time for such unscrupulous activities to take place. Till the end of March 2025, close to 1,200 bankrupt enterprises have been restructured under IBC and their creditors got the chance to recover ₹3.89 trillion or about a third of their admitted claims. This is in addition to proceeds from companies liquidated and the recoveries made by lenders who struck settlement deals with corporate borrowers before tribunals initiated insolvency proceedings. And read | Bankruptcy resolution professionals face creditor fury as cases reach courts
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Business Standard
15-06-2025
- Business
- Business Standard
IBC in stress: Survival depends on commitment to its core principles
Public laws aim to keep the crime proceeds beyond the reach of criminals while punishing the criminals. Although these proceeds were never the state's property, state benefits from their confiscation M S Sahoo Ashish Makhija Listen to This Article The Indian Parliament in 2016 enacted the Insolvency and Bankruptcy Code (IBC) to address the country's persistent challenges of financial stress and managing bad debts, with the overarching objective of driving economic growth. In its initial years, the IBC benefited from rare institutional alignment. The legislature amended the code six times in the first five years to address implementation challenges and respond to the evolving economic environment. With alacrity, the executive issued the rules and regulations, established the Insolvency and Bankruptcy Board of India (IBBI) and National Company Law Tribunal (NCLT), accredited insolvency professionals, and built the supporting ecosystem. The
The Hindu
05-06-2025
- Business
- The Hindu
Is IBC an effective resolution tool?
The story so far: More than eight years have passed since the enactment of India's Insolvency and Bankruptcy Code (IBC). According to data from the Insolvency and Bankruptcy Board of India (IBBI), creditors have realised ₹3.89 lakh crore under the framework, with a recovery rate of over 32.8% against admitted claims. Why was the IBC enacted? India enacted the IBC, its first comprehensive bankruptcy law, in 2016 to improve the overall corporate insolvency resolution process. Shifting control from debtors to creditors, the IBC introduced a time-bound resolution mechanism to streamline bankruptcy proceedings, reduce judicial delays, and improve creditor recoveries. According to current provisions, a maximum timeline of 330 days is allowed to find a resolution for a company admitted into the insolvency resolution process. Otherwise, the company goes into liquidation. So far, the Code has rescued 1,194 companies through resolution plans. Is IBC a preferred route for debt recovery? As per the Reserve Bank of India report on Trend and Progress of Banking in India released in December 2024, the IBC emerged as the dominant recovery route, accounting for 48% of all recoveries made by banks followed by the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act (32%), Debt Recovery Tribunals (17%), and Lok Adalats (3%) in the Financial Year 2023-24. The realisation under IBC is more than 170.1% as against the liquidation value. Resolution plans, on average, are yielding 93.41% of the fair value of the Corporate Debtors (CDs), IBBI said. Further, 1,276 cases have been settled through appeal, review, or settlement, and 1,154 cases have been withdrawn under section 12A. The Code has referred 2,758 companies for liquidation, as per IBBI data. Nearly 10 companies are being resolved against five going into liquidation. Has IBC been an effective recovery mechanism? Akshat Khetan, Founder, AU Corporate Advisory and Legal Services, pointed out that IBC has changed the underlying credit culture. As the Supreme Court once observed, 'the defaulter's paradise is lost' and the Code has created a credible threat that ensures timely repayment. On the recovery rate of 32.8%, Mr. Khetan pointed out that it must be interpreted in light of the distressed nature of the assets that come into the IBC process, often after years of erosion. As the National Company Law Appellate Tribunal has rightly remarked in one of its rulings, 'IBC is not a recovery mechanism; it is a resolution framework.' Compared to legacy systems, where recovery rates were often below 20% with timelines extending into decades, a 32.8% realisation is a leap forward, he said. Mr. Khetan also stated that the statistic does not capture qualitative gains, such as job preservation, improved enterprise value, and restored investor confidence. In a framework designed to balance resolution over liquidation, the broader economic impact of IBC far outweighs numerical recovery alone, he said. The provisions of the IBC have prompted debtors to take early action in distress situations, marking a shift in their behaviour. National Company Law Tribunal (NCLT) data show that 30,310 cases were settled prior to admission, covering underlying defaults worth ₹13.78 lakh crore till December 2024. A study by the Indian Institute of Management, Bangalore, submitted to IBBI, said IBC has injected discipline in the credit allocation process and has prompted borrowers to adhere to stipulated payment schedules. The gross non-performing assets of the scheduled commercial banks have declined from a peak of 11.2% in March 2018 to 2.8% in March 2024. A part of that reduction is attributable to resolution processes enabled under IBC, it said. The study also indicated a 3% reduction in the cost of debt for distressed firms post-IBC, compared to non-distressed firms , indicating an improved credit environment for distressed firms. The IBC has had a positive impact on corporate governance, reflected in the increased proportion of independent directors on the boards of companies resolved under the Code. What are the major challenges? In a recent report, India Ratings and Research said that judicial delays and post-resolution uncertainties continue to affect confidence in the IBC framework. Even when resolution applicants are ready and the Committee of Creditors has granted approval, delays at the NCLT continue to push recovery timelines. In several cases, such delays result in extended litigation or failed implementation, increasing the risk of liquidation for a viable asset that requires timely execution, it said. The future insolvencies also raise questions about the Code's readiness to handle non-traditional enterprise defaults. While the IBC is legally broad enough to accommodate various resolution strategies, key commercial elements such as intellectual property valuation, treatment of employee dues, and tech continuity require a clearer treatment under the framework to make it future-ready, India Ratings said. To enhance its effectiveness, India must invest in strengthening tribunal infrastructure, allow for pre-packaged insolvency, and establish jurisprudential guardrails to protect bona fide commercial decisions from post-resolution uncertainty, Mr. Khetan said. While challenges persist, including process delays and recovery rates below expectations, the Code's foundational structure remains sound. As implementation matures and jurisprudence evolves, the IBC is well-positioned to overcome these hurdles and fully realise its transformative potential in India's financial ecosystem, IBBI Chairman Ravi Mital said in the recent quarterly newsletter. Does the SC verdict on Bhushan Steel pose a challenge to IBC? The recent developments in the Bhushan Power and Steel Ltd. case have reignited concerns around the finality of resolution outcomes and the predictability of the framework. While the decision upholds compliance standards, its timing and implications highlight the need for judicial clarity and faster adjudication to sustain investor confidence in the process in the long term, India Ratings said. By questioning a transaction that had been closed and operational for years, it risks unsettling the core principle of commercial certainty. If resolution applicants fear judicial reversals even after significant investment, they may hesitate to bid, undermining the IBC's very purpose. The Bhushan verdict thus underscores the need for legal sanctity once a resolution plan is approved and implemented, Mr. Khetan said. The IBC is not merely a piece of economic legislation, it is the backbone of India's credit ecosystem. Its future lies in striking a fine balance between judicial oversight and economic pragmatism. As India aspires to become a $5 trillion economy, robust and predictable insolvency mechanisms are indispensable. The Code must remain nimble, continually evolving to meet emerging realities while ensuring that commercial wisdom is not second-guessed endlessly, he said. Almost 78% of the ongoing Corporate Insolvency Resolution Process (CIRP) cases have exceeded 270 days, post-admission by the NCLT, as on March 31, 2025, ratings agency ICRA said. A sustained momentum would be needed to minimise haircuts for lenders, which remain high at 67%, it said. Nevertheless, some of the recent judgments reinforce the need for timely and transparent resolution, thereby putting greater onus on the Committee of Creditors (CoC) and NCLT. However, such rulings may also impact investor confidence in stressed assets setting precedents that the decision made by the CoC and the NCLT may be challenged and overturned by the judicial system, thus impacting the effectiveness of the resolution process, ICRA said.
