The Insolvency and Bankruptcy Code (IBC) is a comprehensive legislative framework introduced by the Government of India in 2016. It aims to consolidate and amend regulations related to the insolvency and bankruptcy of individuals, companies, and partnership firms. Its primary goal is to facilitate the timely resolution of insolvency cases, ensuring an efficient process for either the revival of troubled businesses or their exit from the market. Implemented in 2016, the IBC is a vital tool for streamlining procedures for insolvency and bankruptcy across various entities. This landmark legislation addresses the challenges of financial distress by promoting the swift resolution of insolvency cases. The IBC establishes a structured and efficient mechanism that encourages the rapid recovery of assets, thus revitalising struggling businesses or their orderly departure from the marketplace. Key features of the IBC include a time-bound resolution process designed to prevent delays in insolvency proceedings and minimise potential losses for creditors. Through this framework, stakeholders-including creditors and debtors-are offered a clear path for resolving disputes, enhancing transparency, and improving the overall business environment in India.

How IBC works

Table 1 illustrates the workings of the IBC in detail, which helps to clarify the various phases, key participants, and procedures involved in the insolvency process. This makes the complex legal framework more accessible and easier to navigate. We can better highlight the critical steps and the roles of different stakeholders within the insolvency ecosystem by presenting the information in a structured way.

The IBC regulations

The regulations comprise a thorough set of rules and procedures developed under the IBC by the Insolvency and Bankruptcy Board of India (IBBI). These regulations implement the IBC by creating a structured framework for managing insolvency and bankruptcy matters related to individuals, corporations, and partnership firms. Table 2 explains major IBC regulations and their purposes.

Benefits of IBC regulations

Implementing the IBC has led to many significant benefits that have transformed the country's insolvency resolution landscape. Some of the key advantages that have emerged because of this comprehensive legal framework are as follows:

1. Time-bound resolution

The IBC regulations establish rigorous timelines for resolving corporate insolvency cases, specifically mandating that these cases be concluded within 180 to 330 days. This structured approach is designed to prevent unnecessary delays and ensure that all proceedings are conducted efficiently, fostering a more streamlined process for both creditors and debtors. By adhering to these strict deadlines, the regulations aim to optimise the recovery and maintain the financial ecosystem's overall health.

2. Simplify creditor management

Creditors, particularly those in the financial sector, hold significant authority to make crucial decisions regarding a defaulting company's restructuring and financial recovery processes, primarily through a governing body known as the Committee of Creditors (CoC). This committee, composed of representatives from diverse creditors, plays a pivotal role in overseeing the decisions made during insolvency proceedings, effectively replacing the defaulting company's management in specific matters. As a result, the CoC ensures that the interests of the creditors are prioritised and that any strategies for recovery or resolution are managed in a manner that aligns with their collective goals, rather than those of the failing company itself.

3. Higher recovery rates

Creditors have experienced a notable increase in their ability to recover funds compared to previous frameworks such as the SARFAESI Act and the Debt Recovery Tribunals (DRT). This improvement can be attributed to more robust legal mechanisms and streamlined processes that facilitate quicker resolutions and higher recovery rates for outstanding debts.
Enhanced measures have enabled creditors to implement more effective asset management and recovery strategies, ultimately improving financial outcomes for lending institutions.

4. Transparent and structured process

The regulations meticulously outline a comprehensive process encompassing every stage, beginning with the application phase and extending to the resolution or liquidation stages. This structured framework minimises legal ambiguity by providing clear guidelines and explicit criteria for each step.
These regulations foster a more predictable legal environment for all parties involved by delineating the procedures and requisite documentation necessary for a successful application and the potential outcomes.

5. Uniform framework

The proposed legislation consolidates all existing insolvency laws into a cohesive and unified code that applies uniformly to individuals, corporates, and partnership entities. This comprehensive framework aims to streamline the insolvency process, ensuring all stakeholders are subject to the same legal standards and procedures.
By integrating various insolvency regulations, this code seeks to enhance clarity, improve efficiency, and provide a more predictable environment for debt resolution and rehabilitation for all borrowers.

6. Promotes business revival