Nearly six years after its inception, it is apparent that the IBC system has not been successful in speeding up the process of resolution. The average time taken is estimated to be 440 days, against the prescribed time limit of 330 days. While delays in admission of applications are a major reason for this, it is also proving difficult to find a buyer to take over the company as a whole as a going concern -- more so at a time when businesses are not in the best of shape. To take an example, if a company has two factories, it is possible for a buyer to be interested in buying one facility as a going concern but not another, as he may not have the deep pockets to do so. In that event, the IBC framework is not helpful, as it is biased in favour of complete debt resolution. The ensuing delays lead to liquidation, leaving all stakeholders, including the economy, worse-off. Indeed, the IBC record tells a story: Since December 2016, of the over 5,200 cases admitted for resolution, over 3,400 cases have been closed; of these, about 1,600 were ordered to be liquidated, while only 480 emerged with a resolution plan. Even if one accepts that three-fourth of the liquidated entities were BIFR cases that were no-hopers at the outset, it still shows that the record in favour of resolution is less than inspiring. With asset sales taking place at the liquidation rather than resolution stage, their value gets eroded, particularly those such as IP. Timely, even if partial, resolutions will improve realisations for creditors and protect both the interests of capital and employees. Hence, it is just as well that a recent discussion paper put out by the Insolvency and Bankruptcy Board of India has suggested a change in the law to allow for part-sale of assets to pay off debt.

However, the devil lies in the details. As the paper says, “concern that the liabilities of the CD may all be transferred to certain assets/units while certain assets are kept unencumbered by design and are taken over by a targeted resolution plan will be required to be addressed”. The other difficulty would lie with part sale of an asset mortgaged to a single lender. His contractual rights could hold up resolution if not dealt with, as the paper notes. It says that “a mortgagee/charge holder which is part of the committee may choose to relinquish such rights of mortgage or charge on the property if it results in better realisation for the creditors”. However, this sounds messy at the outset, unless there is a framework in place. There has already been considerable litigation on the misuse of powers by the Committee of Creditors and resolution professionals. In order to reduce disputes, the money collected from part sales should be placed in an escrow account rather than disbursed right away. Above all, part sale of the asset should be accompanied by an undertaking to run a facility, with obligations to protect employee interests and the value of the assets. The modalities of bearing the cost of resolution, in the form of wages and fees to professionals should be worked out in this case.

Net-net, the proposal can speed up the quantity and quality of resolutions if accompanied by other suggested reforms, such as preparing the initial information memorandum thoroughly so that it it elicits informed responses from interested parties.