MUMBAI, MAY 27
Objective of the bankruptcy law is to resolve an insolvency and revive an asset for collective good and not to maximise value for a chosen few, Insolvency and Bankruptcy Board of India (IBBI) chairman M S Sahoo said on Saturday, urging committee of creditors to do more for all stakeholders.
The head of the regulatory oversight board for the nascent Insolvency and Bankruptcy Code, 2016 (IBC), rued that we are not making best use of the code.
“CoC is (committee of creditor) in a custodian and trustee position. It has higher responsibility to look at interest of all the stakeholders. Objective is to work in unison to resolve an insolvency through a process,” Sahoo said at an event organised by industry lobby Ficci here. The CoC, which includes both financial as well as operational creditors of a company, should be “proactive” to create value in an asset, Sahoo said, underlining that the primary priority should be to ensure that the going concern continues to being in business and not to liquidate.
“The objective of a CoC is to generate competitive resolution plans, and then approve that plan which maximises the value for everybody, in contrast to recovery which maximises the value only for one set of people. There is a lot of facilitation in the law for making it happen. The objective is to revive if viable, or close it (the asset), if not viable. You can’t directly go to liquidation,” Sahoo said.
“We are not making the optimal use of the law, we are after maximising value because the code says so. But the code (also) says that it is for the maximisation of value of the assets of corporate debtor and not for a stakeholder, or set of stakeholders,” Sahoo added.
He said there is a lot of scope in the law to make resolutions happen, asserting that with the introduction of the IBC, we have moved away from recovery.
“Probably we are not making the best use of the code (IBC). The code is a much more powerful thing, it can be used for much more higher purposes so that the resolution is sustainable. If the objective was just to discover a price, get a big value, perhaps we could have had gone to the stock market,” Sahoo said.
“The code offers much more potential that is not being realised. It can look at changing the management, technology, product portfolio. A resolution plan allows you do much more than what is happening today,” he added.
The CoC, he said, has a “special responsibility” to ensure such resolutions happen, Sahoo said, adding that it has financial creditors who have the understanding of a business and the financial ability to continue with a resolution. “This is the set of people (financial creditors) who have the ability to take a business decision and take the risk of postponing the recovery,” he said, adding that they have the “stamina to wait for a while, turnaround a company and recover from the performance of the company.”
