Disciplining effects of IBC: Equity inflows, RPT reduction, and Investments

T he Insolvency and Bankruptcy Code, 2016 (IBC/ Code) is the first of its kind holistic creditor-in-control bankruptcy regime in India. Unlike earlier bankruptcy regimes, such as the Board of Industrial and Financial Reconstruction (BIFR), the IBC is more efficient and effective in resolving sick firms. Hitherto, the initiation of bankruptcy proceedings was based on the accounting event of net worth turning negative, and the incumbent management continued to be in control during bankruptcy proceedings. There was no time limit on bankruptcy proceedings. The quasi-judicial board that adjudicated bankruptcy cases took five to eight years to dispose of a case.1 Most importantly, multiple laws dealing with creditor rights and corporations conflicted with the bankruptcy law creating room for confusion and litigation.