Insolvency and Bankruptcy Code changed attitude of debtors, creditors: CAG

New Delhi: The Insolvency and Bankruptcy Code (IBC) has nudged the behaviours of debtors and creditors and this has resulted in substantial recoveries for creditors outside the framework of the code, said GC Murmu, comptroller and auditor general of India (CAG) on Thursday.

“With the code in place, non-repayment of loan is no more an option and ownership of the firm is no more a divine right and equity is no more the only route to own a firm,” Murmu said, during an event commemorating the fourth annual day of the Insolvency and Bankruptcy Board of India (IBBI).

The IBC was also reducing the incidence of default and helping to resolve the non-performing assets crisis affecting the banking system, he said. It also improves corporate governance by deterring fraudulent and extortionate transactions on the part of management, Murmu said.

“It enables claw back of value lost on account of avoidance transactions like preferential, undervalued, fraudulent and extortionate transactions. This deters the management from indulging in such transactions and enables cleansing of corporate governance and improves the confidence of stakeholders.”

Prior to the IBC, the economy suffered from inefficiencies on account of several zombie entities due to the lack of an exit mechanism, Murmu said.

By providing a market mechanism for the rescue of a failing yet viable firm or by freeing up resources through liquidation of unviable firms, the IBC provided the “ultimate freedom” to exit, he said.