Examining the Divergence: A Comparative Analysis of IBC, 2016, Resolution Plan Implementation in India and Corporate Rescue in the United Kingdom

Abstract

In the year 2016, India embraced a fresh era of insolvency resolution as it introduced the new Code of Insolvency and Bankruptcy (IBC) law. This marked a significant transformation in India's insolvency legislation, shifting the paradigm from the “Debtor in Possession” principle to a more Prominent emphasis on “Creditor in Control”. The Indian Ministry of Finance regarded this legislation the "biggest economic reform" Concerning the country. In a historic milestone for India, the consolidation of all laws pertaining to insolvency enacted after the declaration of independence has taken place, marking a significant departure from the past. The most significant aim of this comprehensive code is to achieve prompt resolution of distressed assets, addressing a critical challenge that existed under the previous insolvency regulations. Although several committees have been established since 1964 to improve insolvency laws, the Bankruptcy and Insolvency Code of 2016 is the only statute that fully implements such changes (The report issued by the Bankruptcy statute changes Committee, Volume I). The enormous issue of increasing NPA was causing the government concern. The accumulation of distressed holdings was exacerbated by the procedural delays experienced in the previous insolvency proceedings, leading to their continuous growth over time. A major contributing factor which has resulted in the rise in regard of “NPA” is inadequacy of India's laws governing insolvency. Only 26 cents of every dollar were collected in instances of insolvency in India, and on average, legal processes might last up to four years and 3 months in average. “Insolvency resolution” term is now shortened to 1.6 years as a result of the 2016 implementation of the Code on “Insolvency and Bankruptcy”, and the recovery rate has improved from 26.5% to 71.6%. India's ranking for its ease of doing business among 190 nations is raised from 100 to 63 in 2020. India's ranking in the resolution of insolvencies also increased in 2019 from 56 to 52 (Ministry of Corporate Affairs: Annual End Review 2019). Prior to IBC, the percentage of debt collection was about 26%, and it took more than four years to resolve a case. IBC altered this. Currently, the average recovery percentage for financial creditors is 43%, while the average rate of recovery for operational creditors is 49%. In contrast to previously, when it took 4.3 years, the average period under IBC is now 1.6 years. The cost of resolution has decreased from 9% during the previous resolution regime to 1% following the IBC.