Insolvency and Bankruptcy Board of India (IBBI) is a regulatory body of the Insolvency and Bankruptcy Code (IBC). The IBBI Chairperson Mr. M.S. Sahoo was addressing at a Webinar organised to mark five years of the Insolvency and Bankruptcy Code, 2016. Mr. Sahoo explained the objectives of IBC, as laid down in the Act, are to consolidate/ amend laws relating to reorganisation and insolvency in a time-bound manner for maximization of value of assets of such persons to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders' alteration in the order of priority of payment of Government dues When it comes to IBC, the sole target is a reorganisation of a company while discharging the claims of the creditors to the extent realistically possible. If creditors want to focus only on recovery, he said, there are other avenues available to them.
Citing the Tinbergen Rule, IBC regulator M.S. Sahoo said the only objective of the Insolvency and Bankruptcy Code is the resolution of the corporate debtor. Nobel laureate Jan Tinbergen Rule says one policy tool should be used to address one specific problem, Sahoo said.
Pointing to the loan recovery rate under IBC, Sahoo said the criticism doesn't take into account the objective with which the Code was introduced. He also said the IBC doesn't use the word "recovery" except when it mentions the Debt Recovery Tribunal.
“Where the stakeholders are interested in recovery, they must not use the IBC. There are many incidental benefits that come up from the process but the core purpose is reorganisation”, M.S. Sahoo said.
Massive haircuts taken by financial creditors in insolvency resolution cases of Jet Airways (India) Ltd. and Videocon Industries Ltd. among others have led some to question the efficacy of the Insolvency and Bankruptcy Code. “Insolvency law isn't a recovery tool”, he said. When a firm or creditor opts for insolvency resolution, satisfying claims of all creditors at the same time isn't possible, Mr. Sahoo told.
“It's a situation where the claim of an individual creditor is consistent with the assets of the company but the claims of all creditors together is inconsistent with the assets of the company. If every creditor sticks to its pre-insolvency rights, then neither the resolution of stress is possible nor can a creditor realise its dues”, M.S. Sahoo lauded.
“It is not easy to kill more than one bird with one stone when particularly the parts are flying in different directions. So, there can be many tools for reorganisation and in fact, there are. One may do it under the RBI prudential framework, under Section 230 of the Companies Act. But you cannot have more than one target for one policy”, IBBI Chairperson said.
Mr. Sahoo also mentioned the first case to be resolved under the Code where the lenders had to take a 94% haircut. But he pointed out, the critics forgot that if the company would have gone into liquidation, the creditors would've received only 1% per cent of the value.
The first resolution plan approved by the National Company Law Tribunal was for Synergies Dooray Automotive Limited. There had been haircuts of 94% for financial creditors and they accepted.