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Strong deterrents against failed resolution plans needed to strengthen IBC: ICRA
Feb-19-2019

The rating agency ICRA in its latest report has said that there is need to strengthen the corporate insolvency resolution process to ensure that the resolution plans approved by the National Company Law Tribunal (NCLT) are firmly implemented so that the sanctity of the process is maintained. It noted that in the last two years, Insolvency and Bankruptcy Code (IBC) was implemented, three concluded corporate insolvency resolution process (CIRPs) being brought back to the National Company Law Tribunals (NCLTs).

According to the report, the government should set up strong deterrents to ensure that the resolution applicants do not default on their proposed plans, through measures like a penalty amount linked to the realization promised to the creditors under the resolution plan or barring the resolution applicant from participating in any future CIRPs. It pointed out that such deterrents would make resolution applicants more cautious as well as sincere at the time of submission of their resolution plans. It would also reduce the instances of completed CIRPs being brought back to the NCLT benches that are already overburdened with cases.

The rating agency further said that in cases which go into liquidation like the three ones, recovery for the creditors is most likely to be lower than the amount that would have been envisaged if the resolution application would have materialized. Thus, it becomes imperative that post the approval of the resolution plan by the NCLT, the resolution applicant puts the plan in action within the prescribed timelines so that there is a fruitful outcome of the entire process.

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