Parliamentary Panel Questions High IBC Haircuts
- ByAyushi Ray | August 4, 2021
Parliamentary panel questions high IBC haircuts and cautions the Central Government, over “disproportionately large” haircuts that have been taken by lenders under the Insolvency and Bankruptcy Code. They also warned that if a newly enacted law is being frequently altered then the original aim of the law is not fulfilled , after Rajya Sabha on Tuesday passed the IBC (Amendment) Bill, 2021, amidst a din in the House. As the insolvency process has fairly matured now, there may be an imperative to have a benchmark for the quantum of ‘haircut’, comparable to global standards,” the panel said, reviewing the implementation of the IBC, which was enacted on May 28, 2016, for effective time-bound recovery of debts to encourage entrepreneurship.
The parliamentary panel asked the Centre on haircuts which are as high as 95%. The government told the committee that lenders may take large haircuts in such cases where liquidation values are very low. “It needs to be kept in mind that the fundamental aim of this statute [IBC] is to secure creditor rights which would lower borrowing costs as the risks decline. Therefore, greater clarity in purpose is needed with regard to strengthening creditor rights through the mechanism devised in the Code, particularly considering the disproportionately large and unsustainable ‘haircuts’ taken by the financial creditors over the years,” the panel said in a report.
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