[Answered] Do you agree that IBC has significantly outperformed the earlier BIFR regime? Give reasons in support of your arguments.

Insolvency and Bankruptcy Code, 2016 is a comprehensive law to reorganise and resolve the insolvency of corporations, individuals, and partnerships in a time-bound manner. It also promotes the entrepreneurship as well as accessibility to credit. Previously these tasks were performed by Board of Industrial and Financial Reconstruction (BIFR) regime.

Significance of IBC:

• Resolution speed: A common metric used to assess the efficacy of IBC is the time taken to resolve cases. The entire process of debt resolution under Corporate Insolvency Resolution Process (CIRP) takes nearly 300 days compared to 5-8 year time taken under the process prescribed by BIFR.
• Solved cases: Since its inception in 1987, the BIFR has resolved less than 3,500 cases while the IBC, since it was launched in 2016, resolved about 1,178 cases until it was suspended at the onset of the COVID pandemic.
• Efficiency: IBC is almost 60 times more efficient than the BIFR in resolving cases.
• The World Bank also has acknowledged that the reorganisation process accessible under the Code provides efficient means to restore financial viability and better prospects to realise the optimum asset value.

Issues:

• Poor Liquidation: Liquidation means selling the company piece by piece, asset by asset. As of December 2020, around 69% of the liquidations had been going on for a period of more than one year; 26% of them for a period of more than two years.
• Section 12A of IBC: This section allows the defaulter and the creditors to close the insolvency case. This is being used as a loophole, with banks going in for a one-time settlement with defaulting promoters.
• Bank-led resolution: Banks should be able to perform restructuring wherever possible. But, in the public sector, bankers fear the law enforcement agencies may come after them—even years down the road.
• Excluding promoters: Promoters are excluded from bidding despite they are not wilful defaulters. Banks thinks that allowing promoters to bid for assets after they have defaulted creates a moral hazard. But there are many cases where default occurs for reasons beyond the control of the promoter.

The IBC is a crucial structural reform, which if implemented effectively and in a time bound manner can produce major gains for the corporate sector and the economy as a whole. After all, it played an indisputable role in improving India’s Ease of Doing Business (EODB) ranking from 130 in 2016 to 63 in 2020.