CHENNAI : The Insolvency and Bankruptcy Code, 2016 was designed to approach debt resolution with a grown-up attitude as opposed to taking baby steps. Despite smoothing out kinks, the framework leaves much to be desired. The iron curtain that once prevented creditors from making meaningful recoveries — which was a dismal 25.7 cents to a dollar as on 2016 — were supposed to get better. But, after nearly three years, most cases are stuck in procedural delays and litigation.
The upshot, however, is that wilful defaulters are now barred from wresting back control. So are promoters who missed repayments, wilful or otherwise, though severe lobbying is taking place behind the scenes as a section of the industry argue that some defaults could be genuine, and hence shouldn’t be painted with the same brush. Others reason that such a window could appeal to losers latching onto companies destined for the scrap heap without an effective turnaround plan.
For decades, the system has been doing just that: protecting debtors and allowing assets to rust away. As Asia’s richest banker Uday Kotak once pointed out, prior mechanisms were unreasonable since ‘one had to wait till the cows came home to realise the debt.’
Unlike in the past, the IBC makes the distinction between insolvency and bankruptcy, and malfeasance and failure. However, its implementation continues to be a challenge. There’s a high cost to default or business failure and the Code in its current form, even after two years of existence, is a skeletal structure. The flesh and blood was to be provided by successful resolution, which is currently far and few between. Though IBC had a good start, the battle is only half won. Two years is probably too short for a verdict, but one thing is clear: for borrowers, the days of cheese paring debt are over. If a company has to survive, borrowers have to repay or make way for someone else.