First of all, the lack of judicial infrastructure. The National Corporate Tribunal (NCLT) and its appellate body NCLAT face capacity constraints in terms of physical infrastructure and judicial strength. The Supreme Court directive in the Swiss Ribbon case stipulates the establishment of NCLAT Circuit Circuits Bats, a non-implemented directive, although the recent appointment has resolved the court membership deficit.
The second is the protracted and protracted timeline of the discrimination process. The original IBC framework stipulates a 270-day resolution period. The subsequent legislative intervention in 2019 extended it to 330 days, acknowledging the time taken for litigation. Later, the Supreme Court relaxed for 330 days in the Essar Steel verdict. This judicial flexibility has unintended consequences – 74% of cases are now over 270 days, with an average resolution time extending by 800 days.
Since exogenous factors are not within the scope of the Indian Bankruptcy and Insolvency Commission (IBBI), a practical approach is to adjust the IBC.
The first is to readjust the role of bankruptcy professionals (IPs). Currently, IP responsibilities are composed of two different tasks. The first is to manage the affairs of the company’s debtor as a continuous focus, and the power of the board of directors belongs to the IP. The second involves ensuring compliance with the ever-expanding procedural requirements.
While IPS recognizes that the most critical thing is their primary role, maximizing value and ensuring business continuity is the most critical, the growing complexity of procedural obligations often shifts its focus to compliance due to fear of penalties. In a typical corporate structure, senior management does not spend time making process applications and timely regulatory submissions; instead, professional staff handle compliance, allowing leadership to focus on strategy, operations, and value creation. Similar structures in bankruptcy proceedings can unlock additional value. One potential solution is to appoint additional bankruptcy professionals (AIPs) to handle compliance tasks in large bankruptcies (i.e., debt size exceeds a certain amount). The Commission of Creditors (COC) shall appoint AIPs with the necessary expertise and procedural preference to ensure seamless compliance while releasing IPs to focus on value-added. In addition to the number of cases handled, IPs with deep operating experience in a specific industry can also be considered even if they have fewer bankruptcies. The selection criteria can be consistent with the approach used for temporary management appointments and combine factors such as industry expertise, industry-specific knowledge, experience in adjacent fields, C-suite leadership, financial acumen, international exposure, turnover ability, and ESG awareness.
The second is to introduce mandatory requirements for industrial and occupational safety hazard assessments. This requirement is of great significance considering that companies with financial distress often exhibit patterns of deferred maintenance of capital expenditures. This deterioration usually predates several years of bankruptcy proceedings, in various forms of operational decay – from cannibalization of machinery and suspension of production lines to non-functional environmentally compliant equipment.
This poses an acute risk to process industries and infrastructure assets or security protocols that are critical to any industry. Although no major accidents occurred under the supervision of IPS, this should not cause complacency.
When a security assessment shows defects, IPS should be authorized to implement remedial measures. IP can ensure temporary financing or use existing cash from the company’s debtor to conduct security-related interventions without COC authorization. This autonomy is consistent with the IBC’s fundamental principle of maintaining a constant focus on value.
The economic justification for this empowerment is convincing. Maintaining the relationship between neglect and asset value degradation follows an exponential trajectory rather than a linear trajectory. Therefore, solution applicants will often submit discount prices to ensure poor asset maintenance. Instead, well-preserved operating assets will direct premium valuations during the resolution process.
The third is the futility of IP’s opinions on the PUFE quartet: discounts, undervalued, fraud and ransomware transactions. IP’s opinion lacks legal status unless the ruling is accepted, which is appropriate. However, the ruling process for PUFE transactions is uncertain. Therefore, a judgment that leaves the matter to the Financial Creditors (FCS) is ideal. In the Swiss Ribbon, SC observed that FC was involved in evaluating the viability of corporate debtors from the outset. They also receive regular reports from the company’s debtors.
Therefore, the FC will dig deep into any suspicious pranks. Therefore, they should appoint auditors directly and take action where they see fit, including negotiating with successful applicants for resolutions. This will allow IPS to focus on value creation.
The fourth is to introduce mandatory requirements to write about the reasons for any changes to IP or bankrupt professional entity (IPE). This step is designed to make the process objective to the process and to prevent appointments with most FC impacts. More than 1,600 temporary resolution professionals in total replaced eyebrows from 4,500 similar ones. In an indirect way, if the prequalification criteria for the new task are associated with the number of cases previously processed, the replacement IP may miss future opportunities.
Data about data for changing IPs is not publicly available.
The fifth is to extend the criteria to determine the conflict of interest of IP and the conflict of interest of the company’s debtor and prevent appointments in the event of conflict. The decision should include parties involved in the IPE, which have not been based on any monetary value during the last twelve months. As IPSs rely on their work on IPE, this will enhance the independence of the process.
IBBI’s improvements to the IPS role and the introduction of safeguards regarding appointments or changes to IPS and IPEs can significantly improve stakeholder outcomes.
The author is an unpopular researcher and interim leader.
