Insolvency and Bankruptcy Code should be the preferred option for resolution of bad loans, not the last resort


Insolvency and Bankruptcy Code should be the preferred option for resolution of bad loans, not the last resort

The Supreme Court judgment in the Essar Steel case has restored the primacy of the committee of creditors (CoC), settling the contentious issue of the distribution of funds between creditors.

While the judgment solidifies one of the tenets of the IBC (Insolvency and Bankruptcy Code), does it pave the way for smoother functioning of the resolution process? And does it alter the incentive structure for various stakeholders that have complicated the process so far?

Let’s take a step back. The introduction of the IBC marked a structural change in the resolution architecture in India. The shift to a time-bound resolution process — meant to facilitate the quick exit of firms — was a tool to help tackle the bad loan problem.

But despite its obvious strengths, various stakeholders seem to have recalibrated their approach towards dealing with the problem of bad loans through the IBC process. Read more

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