Not many big-ticket insolvency cases have been filed under the new code to date. Your thoughts on this.
The default underlying the admitted applications ranges from a few lakhs of rupees to a few thousand crore. A few thousand crore of default is not a small insolvency resolution. Further, bigger amounts require a longer preparation time. The corporate insolvency resolution came into force in December, 2016.
What have been the challenges in making the code effective?
There were many challenges, but no challenge was insurmountable. For example, we needed insolvency professionals (IPs) to start transactions. We did not have these professionals as such. We needed innovative, immediate solutions. Fortunately, we had statutorily regulated professionals, namely, chartered accountants, company secretaries, cost accountants, and advocates, who have been carrying on somewhat similar work. We allowed these professional with 15 years of practice experience to register as IPs, but their registration was valid for only six months. This gave us the time to plan a more systematic solution. We developed a Limited Insolvency Examination and allowed professionals with 10 years of experience and graduates with 15 years’ managerial experience to pass the examination and then register as IPs. We are now in the process of formulating a national insolvency examination.
What about meeting the timeline of 180 days for insolvency resolution?
Whenever a timeline is laid down for a transaction, some find it short, while others find it long. Further, a timeline that appears short to start with, may prove long as time passes with the emergence of supporting institutions, technologies and skills. Every transaction takes less time today than it took yesterday. As the number of insolvency resolution transactions goes up, the processes would get streamlined, and standardised and often automated. Probably, standard resolution plans would be available off the shelf. Going forward, a transaction could possibly be completed in a few days or even hours, particularly with the use of artificial intelligence.
Any estimates of how many insolvency professionals are needed?
It depends on market forces. It depends on how many transactions such as corporate insolvency resolution, corporate liquidation, individual insolvency resolution, and individual bankruptcy would come up. It also depends on how the Code and regulations would change the behaviour of stakeholders. Possibly the incidence of default will go down, as a debtor would avoid insolvency resolution process. Equally possibly, as there is a mechanism to resolve insolvency, the incidence of default may go up.
So, what is the road ahead for the Code, given its responsibilities?
The insolvency resolution of every company may not entail the same level of complexity and some could be resolved earlier. The Code, accordingly, provides for a fast-track process for certain categories of companies when the resolution process needs to be completed within 90 days, with the provision for a one-time extension of up to 45 days. Our next step is regulations for fast-track resolution. We have put out draft regulations for public comments. Our next step also includes operationalising Information Utilities (IUs).
Can stock exchanges set up an Information Utility?
A public company having the sole object of providing core services can register as an IU. It should have undivided attention. The exchanges can have a shareholding of up to 25 per cent in an IU. They can even hold up to 51 per cent during the first three years of an IU.