M S Sahoo, Chairperson, (Insolvency and Bankruptcy Board of India) IBBI highlighted that in addition to rescuing viable firms, which is the sole objective of the Insolvency and Bankruptcy Code (IBC); resolution plans under IBC have yielded 200% of liquidation value for creditors.

"They are realizing, on an average, 45% of their claims through resolutions plans under the Corporate Insolvency Resolution Process (CIRP), which takes on average 300 days and entails a cost on average of 0.5%," he said.

This is significantly better as compared to the previous regime which yielded a recovery of 25% for creditors through a process which took about 5 years and entailed a cost of 9%," added Sahoo. 

Speaking at the FICCI-IBBI-CGI-HK Conference on IBC at Hong Kong, Dr Sahoo said that the repayment of debt is no longer an option, it is an obligation as tolerance for default has disappeared.

He said, "A stakeholder may initiate CIRP of the firm when it fails to service its debt for the first time. If process is initiated, the Code shifts control from the debtor to creditors for resolution of insolvency. Through the process of resolution, the ownership often shifts to third parties. Thus, ownership of firm is no more a divine right and equity is no more the only route to own a company."

Sahoo added that the creditors also need to explain to themselves and their stakeholders why they initiated an insolvency proceeding or why they did not, in case of a default. Consequently, there would never be a high value default if this law exists in the statute book.

He acknowledged the support of the Judiciary, Government and the Regulators in facilitating implementation of the Code, both in letter and spirit. He explained that SEBI has exempted acquisitions under resolution plans from making public offers under the Takeover Code.

RBI has allowed external commercial borrowing for resolution applicants to repay domestic term loans and the Competition Commission of India has devised a special route for expeditious approvals for combinations envisaged under resolution plans, said Sahoo.

He also highlighted that the Revenue Department has allowed setting off the aggregate amount of the unabsorbed depreciation and loss brought forward against book profits arising from a resolution plan. 

The Government has demonstrated the highest commitment to this reform. It subordinated its dues to claims of all stakeholders except equity.