During the month of August 21, the August Standing Committee on Finance submitted its report on the implementation of the Insolvency and Bankruptcy Code, the only comprehensive resolution mechanism for all forms of debt resolution which transformed India’s ease of doing business and propelled credit resolutions in India unprecedented in its history. However, as with all new regulations, the law takes its time to settle. Having said that there are certainly some learnings which need to be factored based on experience which may require attitudinal or regulatory change. Key issues are broadly around regulation changes and capacity building. I would focus the piece on capacity building, which I believe is the elephant in the room. The efficiency of courts is first on my list. Our courts today have 13,170 IBC ( Insolvency and Bankruptcy Code) cases pending for approximately INR 9 lakh crores with 71% of the cases being more than 180 days. Apart from the vacancies at the NCLT (National Company Law Tribunal) and NCLAT (National Company Law Appellate Tribunal) and the high level of litigation, the key issue on hand is the approach of the judges. Liberal stays at the slightest instance, encouraging plans from the defaulters whom the Committee of Creditors (CoC) have refused to entertain under the 12A provisions, allowing individual creditors to litigate at every step and adjudicating Financial Creditor admissions to IBC are tools used by vested interests to delay resolutions. The Rules need to differentiate between what is essentially a court filing from a compliance perspective from that of an adjudicating perspective. Our rules and hence our courts adjudicate matters which are essentially just procedures. Examples are Admissions to NCLT, approval of Final plan, process extensions, court filing requirements under IBC. A detailed study of differentiation between adjudication and compliance needs to be thought through. Also, Technical and Judicial members need to adhere to the same timelines as the rest of the ecosystem. This would require a detailed understanding and appreciation of the insolvency process and the law which at present seems lacking. Insolvency professionals are the second on my list. In our quest to build capacity to address the high levels of NPAs in 2016, we introduced over 3000 insolvency professionals with an entrance exam based on levels of seniority and qualifications. Whilst the professionals, mainly accountants started behaving like consultants rather than business managers who are required to preserve enterprise value during the CIRP (corporate insolvency resolution process) period. The focus too moved more toward regulatory compliance rather than business revival. To add to it the regulator focussed on process rather than value creation. Most of the 150-odd show-cause notices issued pertained to compliance with regulation as against business conduct. The supervisory aspect needs to include business conduct reviews within the spirit of regulation rather than bind the Insolvency professional to compliance as the latter only deters maintaining of Enterprise value. The Insolvency professional on his part needs to show utmost integrity and needs to be compensated for the same so as to remain honest. There is a lot of debate around the adequacy of insolvency professional’s fees which I think is a complete waste of time. The insolvency professional should be encouraged to appoint advisors where his skills are enhanced and not seek legal advice at every stage. The culture would come once the system trusts these professionals and the professionals demonstrate credibility. To build an enhanced Insolvency professionals, a continuing education program is required and members who are either found to not do them or have been found for any business-related irregularity should be barred from the profession for life. The Committee of Creditors is the final one on my list. They are the custodians of all classes of creditors and need to operate as a board of directors to protect the best interest of the company during CIRP. The CoC needs to mandate attendance of at least a Chief General Manager level person for all critical discussions and matters that require voting of 66%, for finalising the process for sale, negotiation with Resolution Applicants and for discussion of all Avoidance applications. Further, the CoC should ensure that bankers provide interim finance to keep the operations going within established parameters. The CoC also needs to recognise that the Insolvency Professional is appointed by them to serve the creditors better and there may not be a need to appoint CoC advisors as different from RP advisors. If the need is felt, CoC advisors cannot be paid out of company funds. The CoC needs to question the action of the Insolvency Professional and make him accountable for actions. This would enable better governance, enterprise value creation and hence better recoveries at reduced overall costs In conclusion, I would reiterate the spirit of maintaining or even enhancing enterprise value during the CIRP period through capacity build, trust and commitment. The regulatory changes that would also be required should more be in the nature of facilitation like allowing piecemeal sale of businesses, creditor discretion on avoidance applications, reduced court processes by cutting down adjudication only to disputes and not processes and a policy around interim finance to grow businesses. The key to success of Insolvency is to trust all its four pillars where breaches should be punished appropriately. Abizer Diwanji is Head – Financial Services, EY India <meta content="cms.next" name="cmsei" />

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