According to the most recent research, the goal of this endeavor is to boost the insolvency process’s efficiency and reduce the Adjudicating Authority’s burden.
The proposal by The Insolvency and Bankruptcy Board of India (IBBI) to allow operational creditors (OC) to explore voluntary mediation before filing for insolvency under Section 9 of the Bankruptcy and Bankruptcy Code (IBC) is a significant move.
The IBBI stated that the proposal would simplify the process for the adjudicating authority (AA) and speed up admissions. “If the mediation settlement is unsuccessful, the mediator will prepare a non-settlement report, which shall be annexed with the application for initiation of Corporate Insolvency Resolution Process (CIRP) before the AA”.
In a January research report, an expert committee recommended pre-institutional mediation as a first step prior to filing insolvency applications, and the IBBI proposal reflects those recommendations. Public comments on the proposed framework are expected by November 24th, according to the insolvency regulator.
In most insolvency moves started by operational creditors, the IBBI reports that they are more concerned with claim repayment than with admitting or resolving the corporate debtor.
“According to the data published by IBBI, 21,466 cases have been disposed off prior to admission and only 3,818 cases have been admitted under Section 9 of IBC as of 30.04.2024,” stated Anoop Rawat, Partner, Shardul Amarchand Mangaldas & Co. According to Rawat, this shows that the majority of OCs typically pay off their debts before admitting or resolving the CD.
Such trends also indicate that the pre-admission phase of bankruptcy cases has the highest settlement rate. He stated that the IBBI Expert Committee, which was established in March 2023, has recommended a change to the CIRP Regulations 2016 in light of all of this.