The insolvency professional services and bankruptcy code's spirit lies in handling the affected asset in a fair manner, which is accepted by all its stakeholders. It was formulated to emphasize resolution rather than encouraging liquidation of assets of companies prone to bankruptcy and prioritizing the lender's interests. This constitutes the crux of the insolvency code.
According to a survey, it was observed that many applicants withdrew their insolvency application much before it was accepted, and even after the acceptance took place. In such cases, the recovery procedure took place in the form of settlement outside the IBC law. Before section 12A, the law acted as a mediator to carry out the legal process. Initially, there was confusion among applicants. A perplexity about the code was whether the applicants whose applications have been accepted are allowed to withdraw them. Later on, the code was reformed in the year 2018 that an application that has been admitted by availing insolvency professional services under section 7,9,10 could be taken back after getting a voting share of 90 percent by the CoC ( Committee of Creditors).
The upsurge in corona cases has adversely affected our daily lives. A slowdown in the economy has been observed along with the increasing financial stress as people are burdened by loans and are losing their jobs, which used to be their sole income source. It has also affected the industrial sector and if the situation prevails, the rise in NPA's could be observed along with an increase in debt.
Thus the workload of insolvency professional services has been increasing steadily due to this economic crisis. Hence, to get a hold over the situation, a press conference was held before the onset of lockdown by the finance minister. It was decided that the threshold would be raised from 1 lakh to one crore rupees for availing insolvency and resolution process. A new Section 10A was introduced, which restricted companies from filing for insolvency during such difficult times. The applications which were filed after 25th march 2020 were dismissed from availing insolvency professional services, under the CODE.
The Covid pandemic has led to the need to redefine IP and upgrading insolvency professional services. These professionals can now use their skills and experience to provide guidance and assistance to the organizations in distress. This new role can be turned into reality by recognizing the concept of pre-pack or pre-packaged insolvency.
Pre-packaged insolvency is a resolution technique that is used for a long time by countries like the UK. A company facing financial troubles and its lenders agree with the buyers preceding the beginning of the insolvency proceedings. Till the time IBC acknowledges the pre-pack, the skill set, and expertise, the Insolvency professionals can be promoted and made familiar to people. Other than this, it should be made compulsory to appoint an IP to take out companies in financial stress in advance to encourage them. Thus, challenging times require up-grading skill sets and thinking out of the box so that an IP's role is elevated.
The deferment due to Covid-19 would also impact the Insolvency professional services. This would bring a halt in their profession as NCLT would not allow them to take up any new cases for over six months. Thus these insolvency professionals would not be able to obtain new clients. It would make them switch from their profession, which might also impact the organizations under the IBC.
Other than this IBC prevents companies from liquidating by trying to revive them initially, and if it is not possible, it is left with no other choice but to opt for liquidation.
Liquidation is not favoured as it directly affects the employment status of the people associated with the company. Also, the people who have worked at the senior level, find it challenging to get a job that matches their level of expertise after the liquidation process is completed.
Hence keeping these demerits in mind, the IBC is determined towards giving hope for the restoration of the business whether big or small rather than going for liquidation. Procuring Insolvency professional services provides support and encouragement to a corporate debtor and bring him out of financial stress.