Feudalism of corporate debtors gone after IBC implementation: CEA KV Subramanian

On Friday, Chief Economic Adviser KV Subramanian said that after the insolvency law came into effect, feudalism in the capitalistic system where corporate debtors took it to be his divine right to be in control is gone. In an event organised by the industry body - Confederation of Indian Industry on '5 years of IBC, 2016', the CEA also stated that feudalism is not coming back in the corporate environment.

"Before IBC, there used to be feudalism where the corporate debtor took it to be his or her divine right to be in control... There is a very very clear recognition that those days are gone. That feudalism actually is something that is not coming back...Feudalism is never ever good, but feudalism in a capitalistic system I think is possibly the worst," Subramanian said, reported PTI.

Came into force in 2016, the IBC (Insolvency and Bankruptcy Code) provides for market-linked and time-bound resolutions of stressed assets. If a stressed firm is admitted for resolution under the Insolvency Law, the Committee of Creditors will be in charge and the firm's affairs are managed by a resolution professional. If the resolution is not fruitful, then the firm goes into liquidation.

The CEA added that systems, whether it is IBC or other systems, “can be caught in inefficient equilibria when each agent justifies his or her sub-optimal action by saying that other entities are behaving sub-optimally and therefore I am behaving sub-optimally”.

Insolvency and Bankruptcy Code, 2016

The IBC 2016 is a single point solution for resolving insolvencies and bankruptcy, which previously were considered a long process that didn't offer an economically viable arrangement. THE IBC, which has 255 sections and 11 Schedules, aims to protect the interest of small investors.

IBC: Key features

Insolvency Resolution: The Code outlines separate insolvency processes for companies, partnership firms and individuals. The process may be launched by either the debtor or the creditors.

Insolvency Regulator: The Insolvency and Bankruptcy Board of India has been set up to overlook the insolvency proceedings and regulate industries registered under it.

Insolvency Professionals: Licensed professionals will manage the insolvency process. During the insolvency process, these officials will control the assets of the debtor.

Bankruptcy and Insolvency Adjudicator: The IBC proposes two separate tribunals to overlook the process of insolvency resolution. They are i) the National Company Law Tribunal for Companies and Limited Liability Partnership firms; and (ii) the Debt Recovery Tribunal for individuals and partnerships.