 "M S Sahoo, chairman, Insolvency and Bankruptcy Board of India (IBBI)")
The objective of the bankruptcy law is to resolve an insolvency and revive an asset for the collective good and not to maximise value for a chosen few, Insolvency and Bankruptcy Board of India chairman M S Sahoo said on Friday, urging committee of creditors to do more for all stakeholders.
The head of the regulatory oversight board for the nascent Insolvency and Bankruptcy Code, 2016 (IBC), rued that we are not making the best use of the code.
"CoC is (committee of creditor) in a custodian and trustee position. It has higher responsibility to look at the interest of all the stakeholders. The objective is to work in unison to resolve an insolvency through a process," Sahoo said at an event organised by industry lobby Ficci here.
The CoC, which includes both financial as well as operational creditors of a company, should be "proactive" to create value in an asset, Sahoo said, underlining that the primary priority should be to ensure that the going concern continues to being in business and not to liquidate.
"The objective of a CoC is to generate competitive resolution plans, and then approve that plan which maximises the value for everybody, in contrast to recovery which maximises the value only for one set of people. There is a lot of facilitation in the law for making it happen. The objective is to revive if viable, or close it (the asset), if not viable. You can't directly go to liquidation," Sahoo said.
"We are not making the optimal use of the law, we are after maximising value because the code says so. But the code (also) says that it is for the maximisation of the value of the assets of the corporate debtor and not for a stakeholder, or set of stakeholders," Sahoo added.
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He said there is a lot of scope in the law to make resolutions happen, asserting that with the introduction of the IBC, we have moved away from recovery.
"Probably we are not making the best use of the code (IBC). The code is a much more powerful thing, it can be used for much more higher purposes so that the resolution is sustainable. If the objective was just to discover a price, get a big value, perhaps we could have had gone to the stock market," Sahoo said.
"The code offers much more potential that is not being realised. It can look at changing the management, technology, product portfolio. A resolution plan allows you do much more than what is happening today," he added.
The CoC, he said, has a "special responsibility" to ensure such resolutions happen, Sahoo said, adding that it has financial creditors who have the understanding of a business and the financial ability to continue with a resolution.
"This is the set of people (financial creditors) who have the ability to take a business decision and take the risk of postponing the recovery," he said, adding that they have the "stamina to wait for a while, turnaround a company and recover from the performance of the company."
The government passed the IBC in 2016, which was followed with an ordinance barring some promoters from bidding for the assets. The Cabinet cleared further amendments earlier this week equating home buyers with operational creditors, among others, which is yet to be passed.
Sahoo said 800 cases have been admitted to the 12 National Company Law Tribunal benches, up to 2,500 have been rejected, while there have been 200 voluntary insolvency cases which have also been filed. There are over 100 cases are resolved, he said.
The IBBI chairman said he is broadly satisfied with the progress done under the insolvency law, even though there have been some setbacks which will serve as a learning.
He also sought to dismiss notions that the 270-day timeline is not being adhered to, underlining that a maximum number of cases have been resolved within the timeframe. It can be noted that most of the cases that are making media headlines have not adhered the timelines and have seen frequent legal challenges at multiple stages.
"When we are doing something for the first time, everyone is learning. There will be some issues which will require time to sort out. We have to go through this process. Once the issues are sorted out, we will be with the timeline on every case," Sahoo told reporters on the sidelines.
He also defended the call to treat the micro, small and medium enterprises differently, saying it is a "rational" approach followed all across the world and will help ensure that small businesses flourish.
Sahoo, however, did not comment about the cabinet decision on Wednesday, saying he has not yet seen the detailed contours of it, which will be known only once the ordinance is issued.
