Insolvency law cannot lose its luster: Nirmala Sitharaman


Finance Minister Nirmala Sitharaman said on Saturday that insolvency law could not lose its “shininess” and called on the insolvency regulator and resolution professionals to examine why the pre-packaged program designed to benefiting several micro, medium and small enterprises (MSMEs) had failed to gain traction.

Sitharaman said the Insolvency and Bankruptcy Code (IBC) process is not slowing down, although there may have been problems.

“There’s this narrative that continues in a section that IBC may also be losing its shine because of these kinds of issues. I want all of us to be aware that we can’t afford to see IBC lose its sparkle,” she said. said, speaking at a reception in the nation’s capital to mark the sixth annual day of the Insolvency and Bankruptcy Board of India (IBBI).

The Minister asked insolvency professionals to support the pre-packs.

“The dynamism with which you had insolvency and bankruptcy code cases taken initially as soon as it was introduced, probably the comparable or similar dynamism that I couldn’t see on pre-packaged insolvency for MSMEs,” Sitharaman said.

Bankers or creditors are reluctant to accept voluntary haircuts through a pre-packaged insolvency resolution process (PIRP), fearing that such decisions will be challenged later.

Unlike the normal IBC process, under the PIRP, once the debtor is in default, the creditor seeks an investor who will be able to repay the debt and resolve the issue without having to submit the business to the ‘IBC or liquidation. This preserves the activity of the company and ensures its continuity.

Commenting on the steep haircuts taken by CBI lenders, the finance minister urged resolution professionals to step up their efforts and ensure maximum recovery.

“It’s important that our resolution professionals have enough skills that they understand the complexity of the businesses they deal with, that they understand the nature of the resolutions that need to be made,” she said.

“We can’t let stress signals go unnoticed.”

The IBBI is a key institution in the implementation of the IBC, which provides market-related and time-limited resolution of distressed companies. The code came into force in 2016.

Inflation

The minister said “inflation is at a manageable level” and the country was in an era of robust economic activity.

On Friday, RBI maintained its inflation projection for FY23 at 6.7% amid geopolitical concerns sparked by the Russian-Ukrainian war and sharp hikes by other central banks to contain inflation. RBI raised the interest rate by 50 basis points to control inflation.

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