Rescuing the IBC

THE INSOLVENCY AND BANKRUPTCY CODE HAS BROUGHT MUCH-NEEDED FINANCIAL DISCIPLINE AMONG BORROWERS. BUT WITH DELAYED RESOLUTIONS, LOW RECOVERIES AND JUDICIAL SETBACKS, IS IT TIME TO REVISIT THE LEGISLATION?

- BY SURABHI

On, August 2, 2017, the National Company Law Tribunal (NCLT) approved India's first resolution plan, that of Synergies-Dooray Automotive Ltd, under the newly enacted Insolvency and Bankruptcy Code (IBC).

The insolvency plea of the Hyderabad-registered automotive spare parts manufacturer, which made aluminium alloy wheels for global automakers, was admitted in the NCLT on January 23, 2017, and its resolution plan approved by the Committee of Creditors (CoC) on June 24. The plan, cleared by the NCLT a few weeks later, was a precursor to the headline-grabbing defaults by the so-called “Dirty Dozen” companies whose cases were subsequently taken to the IBC. The list included ABG Shipyard, Amtek Auto, Essar Steel, Jaypee Infratech, and Bhushan Power and Steel Ltd.

The Synergies-Dooray Automotive case also grabbed headlines as admitted claims added up to ₹972.15 crore, and lenders took a huge 94% haircut, with an actual recovery of just ₹54 crore. Questions were raised about the realisations under this new law and how the company was allowed to merge with a related party and creditor Synergy Castings under the resolution plan. But these were still early days and marked down as a learning experience.

An ordinance was promulgated in November 2017 that inserted Section 29A in the IBC to prohibit certain persons, including wilful defaulters and promoters and related parties of the corporate debtor, from submitting a resolution plan. The other remarkable aspect of the case was that the resolution was completed roughly within 190 days. Though this was more than the 180 days mandated under the IBC, approved by Parliament in May 2016, it was still a huge improvement over the past, when similar cases used to be dragged on for years.