IBC 2.0 To Streamline Corporate Insolvency Resolution Framework: ICAI

Changes and improvements are being done to the Insolvency and Bankruptcy Code (IBC), 2016, according to the Institute of Chartered Accountants of India, and an IBC 2.0 is anticipated to be released soon. 

"IBC 2.0 will largely deal with the suggestions mentioned in the discussion paper that has come out from the Ministry of Corporate Affairs. We have to understand that it's a new law that only happened six years ago, and therefore, certain board decisions and practical impediments, as well as other issues that come only after implementation, have to be streamlined, and hence the amendments are proposed," said ICAI President Aniket S. Talati, addressing the ICAI's press briefing on 4 June.

In accordance with the MCA’s discussion paper, IBC 2.0 may contain a full-fledged individual insolvency framework, pre-packaged insolvency for larger corporations, a group insolvency framework, and the use of technology in IBC, according to the governing body of chartered accountants.

Several amendments to the 2016 Insolvency and Bankruptcy Code (IBC) are suggested in a discussion paper published by the Ministry of Corporate Affairs (MCA). The proposed amendments are for the Corporate Insolvency Resolution and Liquidation Framework under the Code, which is being administered by the corporate affairs ministry.

Changes have been proposed to enable a swift admission process, streamline provisions pertaining to avoidable transactions and wrongful trading, and establish norms relating to the time period for approval of resolution plans. 

Besides, amendments have been suggested in connection with the closure of the voluntary liquidation process and the IBC Fund. 

During the IBC presentation at a press briefing on 4 June, CA Gyan Chandra Misra, a member of the ICAI's Central Council, conveyed that a pre-package insolvency resolution process, or PPIRP framework, is something the government is considering for the future and is probably going to be expanded to include larger corporations as well. 

Further, he added that the government may execute the group insolvency structure in the medium term as intended. Additionally, Mishra mentioned that MCA and IBBI are taking into consideration the usage of technology in the IBC ecosystem to handle a number of tasks mandated by the Code with the least amount of human interaction.

The implementation of the Insolvency and Bankruptcy Code in 2016 was a step towards reshaping the nation's credit culture by establishing a time-limited resolution mechanism that attempted to tilt the scales in favour of creditors.

The routine statistics put out by the Insolvency and Bankruptcy Board of India suggest that the outcomes under this resolution mechanism have been less beneficial than anticipated. For instance, the time needed to resolve disputes typically takes longer than anticipated, and creditors' realisations, both financial and operational, have fallen short of expectations.

6,571 cases had already been admitted under the IBC framework as of March 2023. 4,515 of these acknowledged cases have been resolved, while the remaining cases are still undergoing legal action. And of the cases that were concluded, a startling 45 per cent were liquidated, with the other cases either being settled, withdrawn, or appealed.

The entire realisable value in these cases was just Rs 2.86 lakh crore out of the total admitted claims of creditors, estimated at Rs 8.98 lakh crore. This amounts to just 31.8 per cent. So, in the cases where the process has yielded resolution plans, realisations by creditors have been low.

The ICAI president notified the press that IBC 2.0 will soon be released, which will address the problems with the insolvency resolution procedure. "IBC 2.0 is something that the Ministry of Corporate Affairs is actively working to develop. Together, the ICAI and the Insolvency and Bankruptcy Board of India (IBBI) are working on it and assisting the ministry of corporate affairs," Talati stated.