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Insolvency law fosters healthy credit culture: NFRA chief Pandey

July 9, 2024

On Tuesday, Ajay Bhushan Prasad Pandey, chairman of the National Financial Reporting Authority (NFRA), emphasized the importance of insolvency law for a healthy credit culture and its role in unlocking capital from unviable businesses for productive use through the resolution of bankrupt firms' stress. He highlighted that the Insolvency and Bankruptcy Code (IBC) has a significant role in strengthening the economy beyond just enabling lenders to recover dues from corporate debtors.

The insolvency law forms the bedrock of a healthy credit culture and unlocks capital stuck in unviable businesses for productive use by resolving stress in bankrupt firms, National Financial Reporting Authority (NFRA) chairman Ajay Bhushan Prasad Pandey said on Tuesday.

The Insolvency and Bankruptcy Code (IBC), therefore, has a much larger role in bolstering the economy than acting merely as a tool for lenders to recover dues from corporate debtors, he said.

Pandey, who is also the director general and chief executive of the Indian Institute of Corporate Affairs, was speaking at an event of the institute.

Speaking at the event, justice S Ravindra Bhat, a former judge at the Supreme Court, dwelt upon the importance of the resolution of stress over liquidation of firms under the IBC. The insolvency law came into force in late 2016.

Bhat also flagged challenges, including timely resolution of corporate stress, infrastructure issues involving the adjudicating authority and the recovery of dues for lenders.

Sudhaker Shukla, whole time member of the Insolvency and Bankruptcy Board of India, indicated that the IBC’s success can be gauged from the number of corporate insolvency resolutions it has yielded so far (close to 1,000), the withdrawal of a huge number of bankruptcy applications and the sound realisation for creditors over the liquidation value of the stressed firms that have been rescued.

Withdrawal of insolvency applications against firms suggests creditors have either recovered money from debtors or forced them to settle dues just by posing the IBC threat, experts have said. Defaulting promoters run the risk of losing control of companies once insolvency cases are admitted by the National Company Law Tribunal.

[The Economic Times]

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