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A HIGH RESOLUTION TOOL
What the article is about?
- Talks about the performance of IBC compared to the earlier regime
Syllabus: GS-III Indian Economy;
IBC:
- Insolvency and Bankruptcy Code, 2016 is considered as one of the biggest insolvency reforms in the economic history of India.
- This was enacted for reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximisation of the value of assets of such persons.
Key Words
- Insolvency: It is a situation where individuals or companies are unable to repay their outstanding debt.
- Bankruptcy: It is a situation whereby a court of competent jurisdiction has declared a person or other entity insolvent, having passed appropriate orders to resolve it and protect the rights of the creditors. It is a legal declaration of one’s inability to pay off debts.
Objectives of IBC
- Consolidate and amend all existing insolvency laws in India.
- To simplify and expedite the Insolvency and Bankruptcy Proceedings in India.
- To protect the interest of creditors including stakeholders in a company.
- To revive the company in a time-bound manner.
- To promote entrepreneurship.
- To get the necessary relief to the creditors and consequently increase the credit supply in the economy.
- To work out a new and timely recovery procedure to be adopted by the banks, financial institutions or individuals.
- To set up an Insolvency and Bankruptcy Board of India.
- Maximisation of the value of assets of corporate persons.
Performance:
- A common metric used to assess the efficacy of IBC is the time taken to resolve cases.
- It is calculated by taking a simple average of time taken on each completed case.
- This is one of the metrics used by the Insolvency and Bankruptcy Board of India (IBBI) to compare the IBC regime with the earlier BIFR regime.
- For instance, it is often reported that the IBC has reduced the average time to settle a bankruptcy case from 5.8 years to 1.6 years.
- However, the performance of a bankruptcy resolution should ideally be evaluated along at least three dimensions:
- The average time taken to resolve a case, the fraction of cases resolved within a given timeframe, and the recovery rate conditional on resolution.
- Focusing on any single parameter may result in a gross under (over) estimation of the IBC’s (BIFR’s) performance.
- The IBC has significantly outperformed the earlier BIFR regime in terms of the speed of resolution.
