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Making credit information suppliers more efficient can speed up bankruptcy resolution : IBBI

IBBI had registered the first information utility under the bankruptcy ecosystem, the National E-Governance Services Ltd. (NeSL), backed by investors like SBI, Canara Bank and Bank of Baroda. MintPremium
IBBI had registered the first information utility under the bankruptcy ecosystem, the National E-Governance Services Ltd. (NeSL), backed by investors like SBI, Canara Bank and Bank of Baroda. Mint

  • Chairperson Ravi Mital said that IBBI’s proposals in a discussion paper released earlier this month proposes to streamline the format of information of debt/default, record of default and to facilitate submission of additional information by creditors with the IBBI at the time of filing the insolvency application

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NEW DELHI : Making credit information suppliers more effective can reduce avoidable delays in admission of bankruptcy cases in tribunals and a set of proposals made earlier this month could achieve this goal, according to the Insolvency and Bankruptcy Board of India (IBBI).

While there are several factors leading to delays in admission of bankruptcy cases in tribunals, such as litigation by creditors due to existence of disputes and technical faults in applications, one avoidable factor is the information asymmetry in the entire process which can be mitigated by enhancing the effectiveness of information utility, IBBI Chairperson Ravi Mital said in a quarterly review of the bankruptcy resolution ecosystem.

IBBI had registered the first information utility under the bankruptcy ecosystem, the National E-Governance Services Ltd. (NeSL), backed by investors like SBI, Canara Bank and Bank of Baroda. A credit information utility’s role is to provide reliable information which helps in quick decision making, something which is of essence in the resolution of companies in distress. As of end of March, 2022, over 1400 creditors had given information for about 9.5 million debtors with NeSL and defaults in around 300,000 loans had been authenticated by the debtors, the review said.

Mital said in the review that IBBI in a discussion paper released earlier this month proposed to streamline the format of information of debt/default, record of default and to facilitate submission of additional information by creditors with the IBBI at the time of filing the insolvency application. “The proposals are expected to reduce the information asymmetry for creditors at the filing stage thereby helping to speed up admission and also to aid in swifter verification of claims by the insolvency professional," said the review.

It said that time is of the essence in bankruptcy resolution and delays in establishing the existence of debt and default amount need to be reduced. The review quoted a parliamentary panel report which said last year that one of the main reasons for delay in the insolvency resolution process was the delay in admission of application in tribunals. “The delay in admission of application causes asset erosion," the review said, adding that asset erosion can lower the perceived value of the business, something that may affect investor interest, thereby increasing the possibility of pushing a viable entity into liquidation. 

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