While noting that the Insolvency and Bankruptcy Code (IBC) has strengthened the confidence of creditors and encouraged foreign investments in the last eight years of its implementation, a parliamentary panel has identified multiple challenges that are hampering the law’s potential.
It has flagged delays stemming from inadequate judicial infrastructure, the uncertainty regarding the finality of resolution plans — primarily because of judicial reversals, and a lack of accountability among resolution professionals (RPs) as key hurdles to the efficacy of the law.
The committee recommended adopting an enterprise-level price discovery mechanism, besides suggesting cross-border insolvency to strengthen IBC.
The Parliamentary Standing Committee on Finance said the government should take a holistic approach towards reforms through the IBC Amendment Bill, 2025, which is being examined by the Lok Sabha’s Select Committee, to safeguard stakeholders’ interest. It raised concerns over the ‘haircuts’ and valuation of the assets, flagging a lack of transparency and accountability in the process, which sometimes results in a distress sale.
Put simply, a haircut refers to the difference between the amount a lender is owed and the actual amount it is able to recover through the resolution process under the IBC.
Recovery in IBC is constrained since assets are valued merely based on liquidation potential instead of enterprise value, and by a limited pool of quality resolution applicants, according to the report. The average overall recovery under the law is 32.8 per cent of the total admitted claims and 170.1 per cent of the liquidation value.
“…the system (should) be evolved to value assets based on enterprise value to better reflect the corporate debtor’s potential. The Committee further recommends that to reduce ‘haircuts’, the process for competitive bidding be expanded through global outreach to enhance competition,” said the committee in its report on Tuesday, along with a recommendation to introduce standard operating procedures (SOPs) to clearly define the role of liquidators and registered valuers, audit trails, and post-resolution valuation reviews.
As of March 31, a total of 1,194 companies have been resolved under the IBC framework. Through these cases, creditors have realised an amount of Rs 3.89 lakh crore against the total admitted claims of over Rs 11 lakh crore. The committee deliberated on 16 broad issues related to the code, while assessing its impact over the last eight years, including creditor realisation and asset valuation, post-resolution challenges, homebuyers’ rights, cross-border insolvency framework, and diversion or siphoning of funds.
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The committee highlighted that even after the resolution, companies are facing problems starting with a clean slate. They face hurdles such as delays in obtaining necessary clearances from government agencies, and difficulty in obtaining fresh bank financing due to the corporate debtor being labelled a defaulter, said the report. It recommended that the government should establish a transparent online mechanism to issue ‘no dues’ certificates to such companies.
The house panel also suggested that the establishment of cross-border insolvency, as proposed under the IBC Amendment Bill 2025, is the need of the hour for a country like India. It said several corporate entities are operating internationally with assets spread across multiple jurisdictions. “…the current vacuum in a well-established framework to handle cross-border insolvency disputes under IBC, 2016, is causing significant losses in high-value cases and making asset recovery and settlement tedious,” the committee said.
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