Don't Junk CDR Learnings, Can Strengthen IBC

WHEN THE Insolvency and Bankruptcy Code (IBC) was enacted in 2016 in India, which replaced all other previous schemes including the widely used corporate debt restructuring (CDR) scheme, there were heightened expectations that India’s infamously long and unwieldy corporate dispute resolution processes will undergo a significant transformation. 

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While CDR emphasised restructuring and negotiation, the IBC emphasises resolution through mechanisms such as insolvency resolution processes and liquidation, with a focus on protecting the interests of all stakeholders, including creditors, shareholders, and employees. It was expected to ensure reorganisation for commercial entities as an alternative to liquidation or other mechanisms of debt enforcement, reshaping the way insolvent firms could restore their financial well-being or close down.  

Nearly eight years later, the reality is somewhere in between harsh reality and the narrative of the aggregate recoveries. While there is no gain in saying that there have been some good resolutions, mainly of large operating assets and high-profile crises, the recovery rate has been significantly below expectations. In 2023, the average recovery process under IBC was 36 per cent, implying that about only three of every 10 cases brought under the IBC have recovered following resolution.  This is a very low recovery rate of a law that sets a cap of resolving with an outer limit of 270 days or nine months. This often results in a worsening in the value of the assets leading to an even lower recovery for non-operating assets under IBC.