Insolvency: ‘Prior to admission’ delays dragging down efficiency of IBC

India would do well to focus on capacity building at the National Company Law Tribunals (NCLT) and address the inordinate delays at the admission stage for insolvency applications if more efficiency is to be brought into the implementation of the nearly five-year-old insolvency and bankruptcy code (IBC).

These are among the several recommendations that consultancy firm Alvarez & Marsal India put together in a new paper, ‘The Next Phase of the IBC Must Focus on Efficiency’.

It has highlighted that the promise of time-bound resolution has been a distant dream for stakeholders. Of the 277 cases resolved in NCLT, as of September 2020, the average time for resolution, including litigation time, has been 440 days. If one includes the time taken at the admission stage and post approval of resolution plan, it takes close to 12-36 months to close the resolution process. This has strong implications on the recovery through corporate insolvency resolution process (CIRP).

Digital infrastructure

It has made a case for an increase in the number of benches of NCLT at least in major cities and the need to establish separate benches for insolvency with specialised talent pool. Besides stressing the need to appoint judges with commercial exposure, it has also suggested that the a dedicated cadre for NCLT must be created to improve consistency and quality, instead of staffing government employees on a deputation. There is also a need to invest in digital infrastructure.

Items that are dragging down the IBC efficiency are prior to admission delays that are taking six to 12 months against the 14 days envisaged in the code. The primary reason is that corporate debtors and promoters are litigating and preventing the cases from being admitted on various grounds.

“We would like to highlight the key issues to the government, regulator, judiciary and other stakeholders so that changes are made to improve the system. The objective is to ensure NCLT does not end up like DRTs,” Nikhil Shah, Managing Director, Alvarez & Marsal India, told BusinessLine.