Centre for Insolvency & Bankruptcy

RESEARCH

Insolvency regime is an important part of a well-governed polity and efficient economy. It enables creation of an environment that is conducive for entrepreneurship and appropriate risk taking, while safeguarding creditors, as well as providing expertise and a service for businesses and consumers facing financial difficulty.

It is often difficult to measure the contribution of insolvency system in national prosperity. Direct measures of the impact tend to underestimate its importance as they may fail to account for the ‘enabling’ role played by the insolvency system. But, it is now well recognized that an efficient and effective insolvency system is absolutely vital to stability in commercial relationships and financial systems, and fundamental to economic growth, wealth creation and encouraging both enterprise and investment. An effective exit law promotes responsible corporate behaviour by encouraging higher standards of corporate governance, including financial discipline and to avoid consequences of insolvency. It helps preserve employment through an effective system of rehabilitating otherwise sound but financially distressed enterprises, while assuring the maximization and a fair reallocation of the enterprise value to those creditors and other stakeholders. It advances important social objectives of maintaining public confidence in the corporate and financial sectors and investment enable market participants to more accurately price, manage and control default risks and corporate failure, and encourage sound credit practice.

Particularly for an emerging economy, the existence of an efficient insolvency regime has vital economic ramifications. Investors draw confidence from an insolvency system to take risks and make crucial economic decisions. Absence of a well-functioning insolvency law can impact the availability of cost-effective credit, which is often crucial to the sustainable development of an emerging economy. Insolvency issues have also become more and more decisive in the globalisation of capital and financial markets.

India commenced establishment of a robust, modern and sophisticated insolvency framework with the enactment of the Insolvency and Bankruptcy Code, 2016 (Code). Since its implementation, the Code has made rapid strides and remains one of the success stories of recent Indian economic reform and continues to develop as it gains maturity. The Code, with its structure and the accompanying intent to implement, has earned praise from all quarters. It is, today, well and truly entrenched and has become the preferred route for corporate distress resolution. While the full impact of the new insolvency regime is not expected to be visible in the short term, some successes have been recorded already. The Ministry of Corporate Affairs, Government of India has indicated that the Code has had an impact of around INR 3 lakh crore on non-performing assets (NPAs), with more than 1,300 cases currently undergoing Corporate Resolution Process, the impact would only get bigger and better.

The success of any law depends on its implementation. The scholars assert that law inherently is “incomplete” and its effectiveness relies heavily on the institutions of implementation.1 It is increasingly recognised by law and finance scholars that in law making a gap opens up between law on the books and law in action. This gap is a central focus of research for empirical socio-legal scholars of law worldwide.

Academic knowledge, evidence and expertise can help inform, design, improve and test policy – and ultimately make government policy better. Deep research can bring together evidence to support policy makers in achieving real-world outcomes. This includes the development and use of a sound evidence base such as peer-reviewed literatures, or, even better, systematic reviews. Scholars and think tanks are uniquely placed to broker links between different sectors and assist with cross cutting approaches to achieving the sustainable development goals of insolvency industry. The policy makers can build on experience of scholars. In countries with advanced insolvency laws, academics continue to play a very important role in supporting policy development, industry research and finding innovative solutions.

It is crucial to continue to study the impact of the insolvency framework created by the Code, look at its future, and investigate its strengths, weaknesses, opportunities and threats on a regular on-going basis. Deep research can identify how the framework will need to adapt to meet future challenges and how the policy and regulatory framework may compliment the country’s aspirations to climb up and remain among the top of international competition. This will also contribute to robust policy making.

Insolvency Research Foundation

The Indian Institute of Corporate Affairs (IICA) and SIPI constituted a Joint Steering Committee (JSC) under the chairmanship of the Director General and Chief Executive Officer (DG & CEO) of the IICA to make recommendations in respect of establishment of an insolvency academics forum. The JSC was established following the deliberations of the roundtable organized by SIPI on 12 November 2018, which was attended by the representatives of the Insolvency and Bankruptcy Board of India, the World Bank Group, INSOL International, INSOL India, eminent academics, insolvency professionals, bankers and others.

The member of the JSC were selected by IICA & SIPI keeping in view their wide- ranging experience and include professionals from diverse backgrounds. The JSC met on 11 December 2018. A sub-group comprising of Sumant Batra, Chairperson, SIPI and Managing Partner & Head at Kesar Dass & Associates, Abizer Diwanji, National Leader Financial Services at Ernst Young and Ashwin Bishnoi, Partner at Khaitan & Co. was formed to examine the options for the legal structure for the proposed forum and to recommend the most of efficient and cost-efficient structure to the JSC.

The JSC recommended that a forum in the name and style of ‘Insolvency Research Foundation’ (IRF) be established as the centre of excellence for research in insolvency and related areas that strives to cultivate and invest in a fraternity of insolvency academics in pursuit of research and scholarship in insolvency and related laws. The JSC recommends will have its headquarters located in IICA. IICA has world class infrastructure and rapidly expanding resources in its campus, which can be shared with IRF. IRF can also compliment IICA in delivery of its programmes, such as the Graduate Insolvency Programme.

Goal of IRF

The JSC discussed the various roles that IRF can perform as a centre of excellence. There was a consensus among members of the JSC that IRF should focus on research. It should not replicate the work already being done by organisations like SIPI, INSOL India, Insolvency Professionals Agencies the World Bank Group, and other bodies and look to work alongside and in collaboration with other agencies for the overall development of the Code and infrastructure supporting it. IRF should not be perceived as a medium for lobbying by any particular stakeholder. Research should be central to IRF work and other activities of IRF should aim at advancing this goal. This will help IRF stand apart from other institutions, fill the vacuum in space of research and create recognition and niche space in the insolvency industry. This will also prevent distraction and ensure deployment of resources to serve its central role. The JSC recommends that:

    IRF should focus on developing as an independent institution working to serve public good through deep research and sharing of learnings with the policy makers and the insolvency industry.

    In the initial period, IRF should encourage, support and promote research by external scholars. As IRF develops capacity over time, it can undertake in-house research.

    IRF should focus on development and use of a sound evidence based research such as, systematic peer-reviewed literature.

    IRF should aim to develop a community in pursuit of education, research and scholarship in the field of insolvency in India.

    IRF should undertake assessment studies to read the impact of insolvency system on the economy and society. It should play an effective role in identifying how the insolvency framework will need to adapt to meet future needs and challenges; and constantly engage on issues that can complement India’s efforts to continue to climb up and remain on the top in the Ease of Doing Business ranking.

    IRF should identify challenges and propose innovative solutions for improvement in policy and regulatory framework so that the Indian insolvency regime develops amongst the most effective and efficient insolvency regimes.

    One of the key aims of IRF should be to strengthen the interaction between government and academics in public policy making in due course. IRF should serve as a bank of credible resources from which the policy makers can access need-based assistance by way of secondment or through commissioned research.

    Another primary mission of IRF should be to encourage, support and assist in the development of research initiatives in the field of insolvency and related areas; build capacity for research amongst members and others engaged in teaching, training and research in insolvency law; facilitate the exchange of information and ideas with policy makers, regulators and marker players; and disseminate its work for the benefit of the insolvency industry and society.

    A bi-product of its main activities should lead to emergence of a cadre of scholars who are able to serve as insolvency teachers in law, business and management schools, and other institutions.

    IRF should serve as a robust network of academics, scholars, insolvency experts, jurists, stakeholders and others interested in area of insolvency who meet on regularly basis.

    In due course, IRF can venture into capacity building and other areas.

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