Centre mulls system for early warning of potential insolvency

THE MINISTRY OF corporate affairs (MCA) is developing an early warning system (EWS) to identify companies at the risk of insolvency, a move that will facilitate preemptive action to avert industrial sickness.

- MANU KAUSHIK

The system, which will help detect defaults prior to their occurrence, will be designed in the form of a dashboard that will be accessible to both the creditors and regulators, said an official close to the development.

Even though the architecture of the new system is still being worked out, it will be a vast improvement on the current National E-Governance Services (NeSL), an information utility (IU) registered with Insolvency and Bankruptcy Board of India (IBBI), which has a similar mandate.

"The EWS would red-flag cases of discrepancies including irregularities in MCA filings, irregularity in filing tax returns, diversion of funds to sister concerns, issues with debt servicing, weak cash flow, etc," said the official. To be sure, NeSL's mandate is to create a centralised electronic registry which provides services like debt information (loan sanction, disbursement, repayment schedules, securities, charges, guarantees), default reporting, verification and authentication, and give support to IBC proceedings.

BESIDES, IT ALSO generates warnings by providing alerts for missed EMIs, overdue payments and other red-flags.