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The Insolvency and Bankruptcy Code (IBC) was introduced in India in 2016 as a comprehensive legislation aimed at providing a time-bound process for resolving insolvency in businesses and individuals. The IBC aimed to improve the ease of doing business in India and boost investor confidence by providing a more predictable and transparent framework for resolving bankruptcy.

Six years after its introduction, it is worth evaluating the success of the IBC in achieving its goals. In the six years since its implementation, the IBC has seen mixed results. On the one hand, the code has been successful in resolving the insolvency of several large companies, such as Essar Steel, Bhushan Power and Steel, and Alok Industries, among others. The successful resolution of these cases has led to the injection of fresh capital and the revival of these companies, which has had a positive impact on the economy. Following the implementation of the Insolvency and Bankruptcy Code (IBC). India's ranking in resolving insolvency improved significantly from 136 in 2017 to 52 in 2020, as reported by the World Bank.

However, the IBC has also faced several challenges. One major issue has been the slow pace of resolution. The time-bound nature of the code has not been fully realized, with several cases dragging on for years. This has led to delays in the resolution process and has resulted in a loss of value for the assets of the debtor. 

The IBC introduced the concept of the "insolvency resolution professional" (IRP), who is responsible for overseeing the resolution process and ensuring that it is completed within the prescribed time frame of 180 days (which can be extended by an additional 90 days in certain circumstances). According to a quarterly newsletter from the IBBI, the average time it takes for the judiciary to approve a resolution plan after proceedings have begun is significantly longer than the 180 or 270 days mandated by law. In the January-March 2022 issue of the newsletter, it was reported that the average time for approval was 408 days. However, there is no doubt that the IBC has significantly improved the speed of the resolution process for insolvency cases in India. According to data from the Ministry of Corporate Affairs, the average time taken to resolve insolvency cases has decreased from 4.3 years in 2016 to 1.6 years in 2020. This is a significant improvement and is a testament to the effectiveness of the IBC in streamlining the resolution process.

Another key objective of the IBC was to improve the recovery rate for creditors. Prior to the IBC, the recovery rate for creditors in insolvency cases was relatively low, with creditors often receiving only a small fraction of their outstanding claims. The IBC introduced the concept of the "Committee of Creditors" (CoC), which is responsible for approving the resolution plan for the insolvent entity. This has helped to improve the recovery rate for creditors, as the CoC has the power to reject resolution plans that do not provide sufficient value to creditors. Data from the Ministry of Corporate Affairs shows that the recovery rate for creditors has increased significantly since the introduction of the IBC. Prior to the implementation of the Insolvency and Bankruptcy Code (IBC), the average recovery rate was just around 26%. But, since the introduction of the IBC, recovery rates have varied from approximately 33% in 2021-2022 to as high as 49.6% in 2017-2018. This is a significant improvement and is a testament to the effectiveness of the IBC in improving the recovery rate for creditors.

Despite the clear improvements in the resolution process and the recovery rate for creditors, the IBC has faced some criticism and challenges. One of the main criticisms of the IBC is that it disproportionately favors the interests of creditors over those of the insolvent entity and its stakeholders. This has led to concerns that the IBC may be too harsh on struggling businesses and may not do enough to protect the interests of employees and other stakeholders. There have also been concerns about the treatment of minority shareholders and unsecured creditors under the IBC. In some cases, the interests of these stakeholders have been overlooked in the resolution process, leading to discontent. There have also been concerns about the cost of the insolvency resolution process, with some arguing that the fees charged by IRPs and other professionals involved in the process are too high. This has led to calls for the fees to be reduced in order to make the process more accessible to smaller businesses.

Overall, it is clear that the IBC has been successful in achieving its primary goals of improving the speed and efficiency of the resolution process for insolvency cases and increasing the recovery rate for creditors. However, certain amendments are necessary to further reduce the time taken for completion of the resolution process, which would prevent significant erosion of value of the assets. There are also valid concerns about the impact of the IBC on the interests of insolvent entities and their stakeholders, as well as the cost of the resolution process. These issues will need to be addressed in order to ensure that the IBC continues to be effective in the long term.

References:

https://theprint.in/opinion/insolvency-code-is-one-of-indias-success-stories-but-it-now-needs-a-new-life/1044138/

https://www.thehindubusinessline.com/money-and-banking/is-it-still-too-early-to-judge-the-success-of-ibc/article36686268.ece

https://www.moneylife.in/article/bankruptcy-law-changes-without-extensive-public-consultation-a-hurried-amendment-will-be-full-of-new-loopholes-and-issues/69110.html

https://m.economictimes.com/news/economy/policy/government-preparing-to-amend-insolvency-law-to-reduce-time-period-for-resolution-process/articleshow/96319175.cms

https://wap.business-standard.com/article/companies/bs-number-wise-asset-reconstruction-companies-need-to-rebuild-122102101438_1.html