MISUSE OF IBC FRAMEWORK
Key Finding
: The Insolvency and Bankruptcy Board of India (IBBI) has expressed concern that the Insolvency and Bankruptcy Code, 2016 (IBC) is being misused in certain cases for purposes other than genuine insolvency resolution or liquidation of corporate debtors.
- Important Facts:
IBBI has identified several potential misuse patterns, including mitigating tax liabilities, closing or merging companies without regulatory scrutiny, avoiding investigations, prosecution and penalties under various statutes, and monetising or ring-fencing corporate assets.
- Analysis:
The IBC is intended to facilitate time-bound insolvency resolution or liquidation, not to provide an alternative mechanism for avoiding statutory liabilities, regulatory oversight or legal proceedings. Using insolvency proceedings for such collateral purposes could undermine the objectives and integrity of the insolvency framework.
- Impact:
Resolution Professionals (RPs), creditors, directors and other stakeholders must exercise heightened vigilance to identify transactions or insolvency applications that may conceal improper motives, facilitate asset transfers or circumvent statutory obligations.
- Conclusion / Action
Required: IBBI emphasises that vigilance by Resolution Professionals is paramount. RPs should independently examine the commercial purpose of transactions, scrutinise asset monetisation and transfers, identify potential regulatory circumvention, and ensure that insolvency proceedings are conducted strictly in accordance with the IBC, 2016.
