New Delhi: The Insolvency Bankruptcy Board of India (IBBI) has done a very microscopic keyhole surgery under the Insolvency and Bankruptcy Code (IBC) in light of the Covid-19 crisis and no suspension, complete ban or prohibition is there, its chairperson, Dr M.S. Sahoo stated in an ASSOCHAM e-summit on IBC today.
“What was required was to have a well-calibrated middle path and suspend some of the elements,” said Dr Sahoo addressing the delegates in a e-summit on IBC hosted by The Associated Chambers of Commerce and Industry of India (ASSOCHAM).
Noting that the traditional model does not work at this point of time when every firm, industry, economy and the entire world is under stress, he said “This called for experimentation that when these twin complementary remedies translated to two competing options i.e. either suspend the operations of the code or let it continue to operate.”
He explained, “If you suspend the operations of the code, you will fail to liquidate an unviable firm, this mistake can be rectified in the following quarter or year but the second option that you operate the IBC in its normal form, this mistake can never be rectified. So rescuing a viable firm is far more important than failing to liquidate an unviable firm during the current times. Both the options have intended and unintended consequences.”
Dr Sahoo further said that companies experiencing stress for the first time only because of Covid and did not have the stress earlier, only such companies will be prevented from being forced into insolvency proceedings because of the unprecedented situation, force majeure situation.
“There is a possibility that a company which never defaulted earlier defaults during Covid on account of some fundamental reason and not because of the pandemic, there could be such a rare case but if we get into such things as to which one defaulted on account of Covid and which one for some other reason then we will simply lose years fighting legal battles, so let such rare case have the benefit but avoid disputes and move on,” said the IBBI chief.
On suspension of Section 10 of the IBC, he said it is a voluntary option.
He further said that the ordinance brought in Section 10A that prohibited filing of applications only for the purpose of CRP, Dr Sahoo said that it did not change the definition of default, it did not dissolve the obligations of the debtors, no other law was touched and even under IBC also every aspect relating to default remains untouched except that one cannot initiate CRP for a default arising on or after 25th March for a period of six months or such further period not exceeding one year from such date.
Noting that insolvency is essentially an outcome of market forces, he said that insolvency law expects that market should find its own solution. “Of course they need to be facilitated by the law, ecosystem, NCLT, IBBI and others, but essentially we believe that it is an economic problem and it has to be sorted by market participants. The law has to remain firmly grounded to the realities of the market and rescue the firms.”
Talking about the fifth amendment/ordinance that happened a month ago, he said “During these unusual times protecting lives is most significant for us and this in-turn requires us to protect livelihoods and save lives of the companies that are the engines of growth, hope of prosperity, provide goods and services, employment and have an organisational capital over and above their liquidation.”
He also informed that substantial work was going on for having a framework for MSMEs (micro, small and medium enterprises) with some special dispensations, some relaxations without disturbing the basic structure of the Code.
On the committee set up by the government to give a pre-pack framework, he said, “We expect the report of the committee to come by the end of this month. But if this has to be drawn on law and not as per market practice, it will require an amendment in law.”
He also said that work is ongoing on many fronts be it group, cross-border, individual insolvencies and others. “But I think the insolvency law has to remain focussed on basic code, its focus should remain to rescue the company and must continue to serve the economy.”
In his special address, Mr S.C. Garg, former finance secy, Ministry of Finance, Government of India said, “The IBC has created a new institutional path and a shift in the effectiveness of dispute resolution. It is one among several avenues available to business for quick resolution without allowing capital to be wasted. The innovative and proactive role of government and IBBI is heartening to see whereby IBC and regulations may change as per the need of the hour. We have full faith in the Rule of Law and that is what will guve credibility to doing business in our country.”
Mr Garg added, “IBC is the most effective instrument available to banks for recovering their defaulted loans to the best extent possible. Discretion to use IBC or restructure loans under RBI scheme or through any other legitimate way should be that of the banks. Suspension of IBC should be revoked to restore this instrument to banks.”
Dr Niranjan Hiranandani, president, ASSOCHAM & co-founder & MD Hiranandani Group of Companies lauded the government and the RBI governor for a one-time rollover which has been approved by the RBI and put up before the K.V. Kamath Committee. “We are really grateful that such a one-time rollover happening.”
Dr Charan Singh, chairman, ASSOCHAM National Council on Banking said, “Today’s e-summit on IBC – post pandemic, was extraordinary, as we had the best minds participate and share their thoughts. While Dr M.S. Sahoo delivered the key note address, Mr S.C. Garg delivered a special address. The discussions lasted more than three hours. The conclusion, of course was, that testing times are ahead and we are prepared for the challenge.”
Mr S Ramann, MD & CEO, National E-Governance Services Ltd. said, “The IBC has created a new institutional path and a shift in the effectiveness of dispute resolution. It is one among several avenues available to business for quick resolution without allowing capital to be wasted. The innovative and proactive role of govt and IBBI is heartening to see whereby IBC and regulations may change as per the need of the hour. We have full faith in the Rule of Law and that is what will give credibility to doing business in our country.”
Mr Anil Goel, Founder & Chairman, AAA Insolvency Professionals LLP, “All the three factors i.e. ease of entering in to business, ease of doing and growing business and ease of exiting an unviable business are important for an economy. IBC has made this possible as the viable business can be revived and unviable business can be pushed for liquidation so that the asset stripping is stopped and value is maximised for stakeholders.”
Mr Ankur Srivastava, Managing Partner, EZY Laws said, “The government’s decision to shield businesses from the IBC during covid 19 pandemic will provide some breathing space to corporates struggling to combat the onslaught of diminishing demand & poor growth prospects but it’s a double edge sword as it may result in increase NPA’s and defaults.”
Mr Sahil Narula, Partner, RNC Valuecon LLP said, “Maximisation of the value has been the essence of the code, this has been reiterated by the actions of all stakeholders including the regulators. There is a lot of value which is and can be unlocked by the liquidation of the assets of the corporate debtor.”
Ms Anju Agarwal, Director, ASC Group said, “To unlock the assets which are lying idle and to save resources which otherwise would be utilised, it is important that liquidations of unused assets is done and thus some resources are saved for future.”
Mr Ishtiaq Ali, Founder, Orbit Law Services said, “Liquidation of companies and sale & distribution of assets under any legal framework, whether IBC or Companies Act, is important aspect of growth of national economy. Just like nature’s principle of living things need to die for survival of other living beings.”