Corporate insolvency resolution process in India –  an exit gateway

Background

In India the ambit for corporate insolvency was previously covered by the Companies Act, 1956 and the Companies Act, 2013. Following the enactment of the 2016 Insolvency Code, the new process replacing corporate wind up was called the Corporate Insolvency Resolution Process (CIRP). The process serves to resolve issues regarding defaulting companies within a reasonable period of time, thereby maintaining the company as a whole. This insolvency resolution process has been widely covered under Chapter I of Part II of the Insolvency and Bankruptcy Code, 2016 (IBC). 

Exit gateways

The legal regime for corporate distress resolution in India has been overhauled and replaced with a predictable, market-led, incentive-compliant, and time-bound mechanism. It addresses market imperfections and plugs information asymmetries, enabling the ‘freedom to exit’ for commercial entities (through corporate insolvency resolution regimes) and entrepreneurs.

This process has evolved significantly in recent years, bringing about a more structured and transparent approach to resolving insolvency-related issues. 

Debt recovery, corporate restructuring, preserving the value protection of stakeholders’ interests, and boosting the investment climate are the main reasons why the CIRP was implemented as a streamlined process for debt recovery.

This market-driven, transparent resolution mechanism instils confidence in the financial system and attracts many new investors to Indian businesses. A significant achievement of the IBC has been changes in the debtor-creditor relationship. Debtors are able to resolve stress early and avoid being pushed into insolvency.

Conclusion

One of the major steps taken to ease doing business in India is the CIRP process. The IBC has incorporated some of the best international practices in its asset resolution mechanism. This has been a game changer in economic legislation and has enabled the establishment of a comprehensive ‘one-stop-shop’ for insolvency resolution. This has further paved the way for ease of exit in cases of honest business failure, and enables the release of credit locked into stressed assets for better resource allocation. 

Overall, the CIRP process provides a transparent and efficient mechanism for the resolution of corporate insolvency in India which benefits all stakeholders including creditors, shareholders, and employees. 

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Ajit Kumar is the head of the Transaction & Regulatory Advisory Services department at RNM India. He is an LLB, FCS with over 14 years of experience and expertise in handling legal, secretarial and corporate affairs matters for trading, manufacturing, and service sector industries in India. He is a subject matter expert in corporate restructuring, FEMA & RBI advisory, corporate compliance, and due diligence.