IBC tale of delay: Speed up insolvency resolution for this reform to shine

livemint.com:

CRISIL states that the recovery rate under the IBC fell from 43% to 32% between March 2019 and September 2023. Average resolution time too has increased from 324 to 653 days. A tale of delay: There are several instances of delays in the disposal of creditors’ appeals.

Sometimes, courts get into the commercial aspects of transactions unrelated to legal aspects. The Supreme Court (SC) has observed that the commercial wisdom of the Committee of Creditors (CoC) cannot be questioned. Rightly so.

Once the CoC takes a decision on whether to approve a resolution plan or not, it should not be subject to court review if no legal provision is violated. In the Essar Steel matter, the SC observed that it is the commercial wisdom of a majority of creditors which determines, through negotiation with the prospective resolution applicant, how corporate insolvency is to be resolved. Similarly, in the SREI Multiples case, the SC said that once a resolution plan is approved by the CoC, no modifications are permissible, unless it is contrary to the IBC’s mandate.

Since the Code’s inception, a total of about 6,815 insolvency cases have been admitted. Of this, some 2,800 are still undergoing resolution under its process, with claims worth trillions of rupees at stake. While each insolvency case may be unique, a few common elements are found to have kept recoveries clogged.

In February, the Standing Committee on Finance observed in its 67th report that India’s insolvency process has been stymied by delays that far exceed statutory limits. This panel found that actual recoveries on the ground may be as low as between 25% and 30%. Delays in insolvency resolution may be attributed to three major factors.