An optimum law would enable the restructuring and survival of struggling but sustainable enterprises, along with the efficient liquidation of struggling and non-sustainable enterprises. The legislation must further assure candour, integrity, effectiveness, and, especially punctuality, as they have substantial repercussions on the distribution of credit risk as well as risk mitigation in the banking industry, and hence significantly affect the availability of finance and its affordability.
The Insolvency and Bankruptcy Code governs insolvency procedures in India. The legislation, which went into effect in 2016, attempts to govern, standardize and expedite the insolvency processes that will be initiated within the nation. This is a result of the legislature’s attempts to assure debt recovery and is focused on addressing gaps left by the earlier statutes such as RDBFI 1935 and SARFESI 2002.
With a remarkable rate of closure, the IBC has culminated in a tremendous change in settlement and retrieval procedures. As per the Economic Survey 2020-21, the IBC has resulted in the liquidation or acquisition of over 1500 businesses, with roughly 1800 more in the pipeline. While Indian courts are notorious for taking a garrulous time in proceedings, the IBC compels a conclusion of proceedings in a particular timeframe with a statutory threshold of 330 days, tied to specific exceptions. As per the Economic Survey 2020-21, the average time it takes to settle an entity is 441 days, comparable to 328 days for liquidation.
Upon assessing the exposure of the IBC 2016, the Insolvency Law Committee (ILC) resolved to form a subedit to research the pre-packaged Insolvency Resolution Process (PPIRP) towards enabling accelerated settlement of insolvency and present their proposals at its conference on May 16, 2020. As a result, the Ministry of Corporate Affairs (MCA) established an ILC sub-committee by notification issued dated April 24, 2020, presided by Dr. M S Sahoo, Chairman of IBBI.
The panel presented its findings to the state on the date of October 31, 2020. It was determined to modify the IBC 2016 on the grounds of the panel’s findings and conclusion. On April 4, 2021, an Ordinance amending the IBC was released. The revisions take force on April 4, 2021. The Ordinance has been replaced by the IBC (Amendment) Act, 2021, commencing April 4, 2021.
On the date of April 4, 2021, the PPIRP for corporate individuals designated as MSMEs was established. With effect from the date of April 4, 2021, Chapter III-A [sections 54A to 54P] has now been inserted into Part II of the IBC, 2016. The objective of the Amendment is just to assist MSME in overcoming the challenges posed by the COVID-19 crisis. Nevertheless, this really isn’t the primary goal of the Amendment. PPIRP has a significantly broader purview. Several participants were concerned regarding whether it will be a commercial success or only a novelty.