M.S. Sahoo, Insolvency and Bankruptcy Board's chairperson, says key takeaways from the law will include development of debt market, improved ease of doing business
New Delhi: Economic reform includes freedom of entry, freedom of doing business and freedom to exit a market, says M.S. Sahoo, chairperson of the newest regulator on the field—the Insolvency and Bankruptcy Board of India (IBBI). He says that the swiftness with which the government set up the bankruptcy framework after the passing of the law is proof that the Centre is pushing for an easier exit strategy for companies. In an interview, Sahoo says the key takeaways from the code will be the development of the debt market, improvement in the ease of doing business and promoting entrepreneurship. Edited excerpts:
Can a change in the ease of doing business rankings 2017 be expected?
It should. What is, however, important is the real gain to the economy. For example, this (bankruptcy framework) should change the pattern of financing the enterprises. There are two broad ways of financing enterprises: equity and debt. Today, the share of debt in enterprise financing is below the levels in comparable economies. A key outcome would be improvement in the share of debt in total financing, the share of financial debt, the share of non-bank debt in total debt and the share of unsecured debt in total debt. Another outcome could be the amount of unutilized resources released from defunct enterprises. One should allow reasonable mass of transactions to go through, before evaluating.
Has there been effective market demand for the code?
I find overwhelming interest from the stakeholders. Within one week of issue of regulations, three insolvency professional agencies were registered. In about a month, 977 insolvency professionals were registered. The limited insolvency examination commenced on 31 December 2016 and people are taking examinations every day. There are a large number of awareness and training programmes happening all over the country. There has been active participation of the stakeholders in making of the code and the rules and regulations. Regulations relating to corporate insolvency resolution came into effect on 1 December 2016. Quite a few cases have been filed before NCLT (National Company Law Tribunal) and a few have already been admitted.
What are the regulatory challenges that you are expecting to come up with the implementation of the code?
The country has set up several regulatory regimes for different spheres of the economy over the last two decades. The stakeholders understand that the market develops under the comfort of regulations. More importantly, there has been engagement of the stakeholders at every stage of the development of the regime. The Bankruptcy Law Reforms Committee, joint parliamentary committee, working groups of the ministry of corporate affairs and advisory committees of IBBI have deliberated the issues at great length. There have been several rounds of public consultations also. I do not really see any challenge, particularly when there is buy-in from the stakeholders.
What are the possibilities of cases like Mallya’s happening again?
The regime gives an opportunity to the stakeholders at the very first default to take a call and empowers them to take the most appropriate call in their best interests under the circumstances. If one takes note of the alert and acts accordingly, one is unlikely to reach an alarming situation.
There is talk about the timeline of 180 days for corporate resolution process. How hopeful are you about keeping to these timelines?
The transaction is being undertaken by the stakeholders themselves. And the entire process is under their control. If one is pursuing his own interest, and everything is under his control, in all probability, he would do it well in time. That is why we call it a market-determined process. The state, NCLT and IBBI, are not examining the transaction (resolution plan) on merits. It mostly sees if due process has been followed—committee of creditors has been properly constituted, there actually has been voting by 75% (of the committee).
To make it happen in 180 days, there are certain institutional facilities like the insolvency professional, who guides the stakeholders throughout the process. The other is the information utility which will be the storehouse of all the information that one needs for a transaction. Further, over time, efficient practices develop, and processes get standardized and automated.
How soon will personal insolvency regulation be taken up? Will the debt recovery tribunals be overhauled as planned, given their role in personal insolvency?
We are now focused on corporate insolvency resolution and corporate liquidation for which NCLT benches are in place. Regulations for information utilities and corporate voluntary liquidation should be through in the next three-four months. Then we’ll start looking at personal insolvency.
I am sure that the government is conscious of the imperatives of the code. Please see the commitment of the government to the cause of the code. It pushed down its priority in the waterfall (of claimants in a liquidation process) from the highest category to a category below unsecured creditors. It took less than six months to make the code.
Would you agree that there’s extensive government control as questions have been raised about it? Should the market be independently allowed to regulate itself?
I do not agree. The code puts all transactions—insolvency resolution, liquidation, bankruptcy—in the hands of stakeholders and independent professionals. The government does not have any role in these transactions, except providing a conducive ecosystem that facilitate transactions.
We had an existing model. There were some bankruptcy transactions going on (at the time). That is what the market had come up with. That model didn’t work. So, a different model is being tried now.
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