The Indian Insolvency and Bankruptcy Code, 2016 (the IBC) represents a radical rewriting of India’s corporate insolvency procedures, enabling creditors to restructure bad debts and rehabilitate corporate debtors within specified timelines.
The IBC process, like the Australian and UK administration procedures, is not a debtor in possession procedure. Instead, a third-party insolvency practitioner (the Resolution Professional) takes control of the corporate debtor and, within strict statutory time frames, formulates a restructuring plan that creditors need to approve. The IBC process gives substantial power to financial creditors, both domestic and foreign.
The introduction of the IBC has been followed by the passing of The Banking Regulation (Amendment) Ordinance, 2017, which empowers the Reserve Bank of India (the RBI) to issue directions to regulated Indian banks (the Banks) to initiate an insolvency resolution process under the IBC in respect of a defaulting borrower.
In June 2017, the RBI mandated that the non-performing loans of 12 specified India corporates qualified for immediate reference under the IBC, and the RBI has subsequently issued further lists of defaulting corporate borrowers. The Banks were required to finalise a resolution plan with the affected debtors within a specified time, failing which they were required to file for insolvency proceedings under the IBC in respect of those debtors. The Banks have adhered to the timelines prescribed by the RBI, and a number of such IBC insolvency proceedings have been commenced.
A year after its introduction, the IBC is largely regarded as a success in India, including with respect to adherence to the statutory timelines. The Indian government has acted quickly to modify the IBC from time to time to ensure its effective operation.
The IBC is giving rise to a wave of distressed asset sales, the quantum of which is only expected to rise in 2018.
Those likely to be affected, or be in a position to benefit from the opportunities presented, by the IBC include the following:
- Distressed Indian corporates, their stakeholders and creditors in relation to both domestic and offshore assets and subsidiaries
- Indian banks, including with regard to the offshore assets and subsidiaries of their domestic borrowers
- Foreign creditors of Indian borrowers and guarantors
- Potential buyers of assets sold pursuant to an IBC process
- Lenders and funds interested in providing super-priority funding, pursuant to any IBC restructuring plan
A link to a complete copy of the IBC Client Alert can be reviewed here.
