Whalesbook
The Paradox: More Closures Than Revival?
India's Insolvency and Bankruptcy Code (IBC) was designed to resolve and revive struggling companies. Yet, a significant majority of cases now end in liquidation instead of successful recovery plans. Data from the Insolvency and Bankruptcy Board of India (IBBI) suggests the IBC is increasingly becoming a tool for faster business closures, raising questions about its original intent.
Late Filings Doom Revival Chances
Many companies enter the insolvency process, known as CIRP, when they are already too far gone to save. Operations may have stopped, staff may have left, and company assets may have lost significant value. When a business reaches this point, revival is extremely difficult. Liquidation then becomes a formal step for a business that has already failed. This suggests the timing of insolvency filings, rather than the IBC framework itself, is often the key to a company's survival.
Key Resolutions & The Delay Problem
Despite challenges, the IBC has overseen successful resolutions for major companies like Essar Steel India Limited, acquired by ArcelorMittal and Nippon Steel Corporation, and Bhushan Power and Steel Limited, taken over by JSW Steel. These examples show the code's potential when companies are still viable and attract buyers. However, a core promise of completing resolutions within a strict timeframe—originally 180 days, extendable to 330—is often missed. Lengthy delays, sometimes lasting two to three years due to lawsuits over claims, bidder qualification, regulatory hurdles, and tax issues, erode a company's value and push more cases toward liquidation.
Courts, Delays, and Resolution Teams
Important court rulings, such as the Supreme Court's focus on resolving businesses in the Swiss Ribbons case and its clarification on past debts in the Ghanashyam Mishra case, have shaped how the IBC works. While these judgments brought clarity, ongoing legal battles have also caused significant delays. Resolution Professionals are vital in reducing legal disputes and concentrating on workable restructuring plans. Swift processes are crucial, as faster action directly increases a company's chances of survival.