Creditor-led Insolvency Resolution Mechanism

May 9, 2023

The Creditor-led Insolvency Resolution Mechanism is a newly proposed mechanism that aims to reduce delays in the resolution process, which have escalated under the current system, causing legal challenges and a shortage of NCLT benches. As per the Insolvency and Bankruptcy Code (IBC), the Corporate Insolvency Resolution Process (CIRP) is mandatory, with a maximum of 270 days stipulated to resolve corporate bankruptcy.

The Delays

There is a considerable delay in filling vacancies at the National Company Law Tribunal (NCLT), creating a hindrance in resolution process. The layers of decision-making involved in tracking the right people and ensuring transparency in their operations and decision-making are taking significant time.

The Sudhaker Shukla Panel

To establish a regulatory approach for the fast-track resolution process under the IBC, the Insolvency and Bankruptcy Board of India (IBBI) has constituted a panel under Sudhaker Shukla, its whole-time member. The panel is composed of experienced bankers, an ex-central bank official, and an individual with expertise in resolving insolvency matters.

Recovery Percentage

According to IBBI, the average resolution time for the 611 bankruptcy cases under the IBC until December 2022 was 482 days, excluding the NCLT time. Creditors recovered Rs 2.53 lakh crore, which is 30.4% of their admitted claims in these 611 cases. In the case of 516 firms, the realization was 84% of the fair value calculated when they were admitted for CIRP.

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