Companies in India not using IBC enough to resolve insolvency: IBBI chief
Delhi, Jan 30, 2025
IBBI data suggests that the share of CIRPs initiated by corporate debtors or companies is declining over time
Companies in India have yet to learn to use the Insolvency and Bankruptcy Code (IBC) to make themselves more productive, and the insolvency regulator would be keen to study and resolve any roadblocks they face, Ravi Mittal, chairperson, Insolvency and Bankruptcy Board of India (IBBI), said on Thursday.
Speaking at an event organised by the Associated Chambers of Commerce and Industry of India (Assocham), Mittal said: “In India, it is the creditors who file for insolvency in most cases. It is preferable when companies come forward themselves, as that is when value destruction is the least.”
Comparing the insolvency data of the developed world, the IBBI chief highlighted that around 63,000 of the total 66,000 insolvency applications filed in the US were voluntary by the companies themselves. “This means that insolvency is not an adversarial process,” he added.
According to IBBI data, as of September 2024, 3,706 insolvency applications were initiated by financial creditors, 3,812 by operational creditors, and only 480 by corporate debtors (companies) themselves.
The IBBI data showed that about 80 per cent of corporate insolvency resolution processes (CIRPs) with an underlying default of less than Rs 1 crore were initiated on applications by operational creditors, while about 80 per cent of CIRPs with an underlying default of more than Rs 10 crore were initiated on applications by financial creditors.
IBBI data suggests that the share of CIRPs initiated by corporate debtors or companies is declining over time.
Mittal said that cases worth Rs 11 lakh crore had been settled through IBC by withdrawal even before they reached the admission stage, showing that the IBC had changed the debtor-creditor relationship.
“Fear of law is better than using the law. People today do not want to default,” he said.
In the last eight years, Mittal said, IBC has provided the best exit mechanism to companies while returning Rs 3.6 trillion to creditors, enabling banks to lend much more.
The IBBI chairperson stressed the need for the private sector to ramp up its investment in infrastructure to contribute towards India’s goal of becoming a developed country at the earliest.
“The government recognises the need for investment in infrastructure, and in successive Budgets, this amount has been increasing, but the government cannot provide the huge investment this sector requires,” Mittal said.
[The Business Standard]
