• UGI USER
  • Jan 12, 2024
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NEED LEGISLATIVE CHANGE FOR GROUP INSOLVENCY FRAMEWORK

Why in the News?

  • RBI Governor Shaktikanta Das advocates for a specified framework for group insolvency and a vibrant market for stressed assets in India
Source: Britanica

About

  • RBI Governor Shaktikanta Das advocates for a specified framework for group insolvency and a vibrant market for stressed assets in India to enhance the functioning of the Insolvency and Bankruptcy Code (IBC).
  • Group Insolvency Framework: Das suggests establishing appropriate legislative changes to define principles for the group insolvency mechanism, which is currently evolving under court guidance, to address challenges such as asset intermingling, ‘group’ definition, and cross-border issues.
  • Stressed Assets Market: Das identifies the absence of a vibrant market for stressed assets as a major obstacle to implementing successful resolution plans, limiting prospective resolution applicants under IBC. He highlights the importance of a robust secondary loan market for managing credit exposures.
  • Emphasis on Financial Creditor-Led Resolution: Any amendments to the IBC should continue to prioritize a financial creditor-led resolution framework.
  • Recovery Rates: Das mentions that creditors have realized Rs 3.16 lakh crore out of the admitted claims of Rs 9.92 lakh crore as of September 2023, resulting in a recovery rate of 32%. He notes that significant value destruction may have occurred in these assets before admission under IBC.

What is IBC, 2016?

  • The Insolvency and Bankruptcy Code (IBC), 2016, is India’s bankruptcy law, unifying and modifying existing laws concerning insolvency and bankruptcy for corporate entities, partnerships, and individuals.
  • Insolvency Defined: Insolvency occurs when an entity’s liabilities surpass its assets, and it can’t generate sufficient funds to meet its financial obligations as they become due.
  • Bankruptcy Explained: Bankruptcy refers to the legal declaration of a person or company’s inability to pay their outstanding bills.
  • Objectives of IBC: IBC aims to streamline insolvency resolution with a time-bound, creditor-driven process, fostering a better credit culture and business environment in India.
  • Addressing Bad Loans: IBC primarily deals with insolvent companies, addressing the issue of non-performing assets and bad loans that were affecting the banking system.