Is insolvency and bankruptcy code exhaustive?

Is insolvency and bankruptcy code exhaustive?

The Insolvency and Bankruptcy Code was introduced in 2016, but in practical implementation, there are certain disadvantages that are pointed out.

How was Insolvency and Bankruptcy Code was enacted?

Insolvency and Bankruptcy Code came into effect on 28th May 2016 for the consolidation and amendment of the laws for the purpose of resolution of insolvency matters of the partnership firms, corporate, and individuals.

The new code targets to maximise the value of assets of such persons in order to promote entrepreneurship, credit availability and for the welfare of the interest of all the stakeholders namely - National Company Law Tribunal (NCLT) as the authority of adjudication for the corporate persons, and Debts Recovery Tribunal as the authority for adjudication for partnership and individual.

What is the purpose of IBC?

• An aggregate strategy for indebtedness goals

This objective of the code plays a role in creating the trust of the entities and individuals in the credit system and the promotion of economic growth that is beneficial. In a creditor-debtor relationship, the creditor's ability to initiate the proceedings regarding insolvency means the enforcement of his claim that reduces the risks involved in lending, resulting in making the credit and investment market.

Law relevant to indebtedness is likely to serve different creditors as well as to assist the borrowers. Also, it regulated the treatment of the unsecured creditors, which treats the estimation of the security that is of special significance for the account holder, in case of credit hazards.

• Boosting the incentive for serving stakeholder and the economy at large

During the restoration and rehabilitation, the goal is to maximize the value for the continuation of a viable business. The primary purpose of the procedure is that there are provision for liquidating companies that cannot be restored.

The success of the value maximization lies when it is regularly promoted by the satisfaction of the target of equal distribution of risk.

What are the disadvantages of IBC?

The IBC is considered to be exhaustive in nature, therefore the advantages are as follows-

• The code is insufficient to protect and secure the company's interest unless the management is handed over to the qualified resolution

• The code substantially rides upon the creditor's words, which cannot be denied.

• Almost no chance of representing at any phase of the resolution process is given to the corporate account holder.

• The Code does not provide any criteria for the qualifications to be possessed by the professionals in the interim insolvency resolution as well as in the final.

• The concept of the rationale behind insolvency service agencies is unclear that overlook the functioning of the insolvency professionals. The presence of multiple IPAs operating at the same time could allow for competition in the sector.

What is the present scenario of IBC in India?

The present scenario of the practical implementation can be understood by the following cases.

In Rajkumar Brothers and Production Pvt. Ltd. v. Harish Amilineni, the Supreme Court observed that the Corporate Debtor was not liable to pay the cost of the Interim Resolution Professional. Moreover, the Apex Court further observed that the corporate debtor cannot be could not be expected to be saddled with the said costs after succeeding in its appeal against the order of the NCLT.

In Swiss Ribbons Private Limited v. Union of India and Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta and Ors., it was held that the operational creditors cannot claim equitable treatment with the financial creditors. As the operational creditors are totally separate they are entitled to a minimum payment that is equal to the liquidation value.