The revamp of the Insolvency and Bankruptcy Code (IBC) in India is expected to bring about a significant change for operational creditors, providing them with better opportunities for realizing their dues. The revamped code will address some of the key issues that operational creditors have faced in the past, which have often led to a delay in their payments or even complete write-offs.
Operational creditors are entities that provide goods and services to companies on credit, including vendors, suppliers, contractors, and employees. Unlike financial creditors such as banks and other lenders, operational creditors do not have any security or collateral against their dues, making it harder for them to recover their money in case of default.
Under the current IBC regime, financial creditors have priority over operational creditors in the resolution process. This means that in case of insolvency, financial creditors are given priority for repayment, while operational creditors are often left with little or no recovery. This has been a major bone of contention for operational creditors, who have been demanding a fairer deal in the resolution process.
The revamped IBC is expected to provide operational creditors with a more level playing field, by giving them greater say in the resolution process and ensuring that they receive a higher recovery rate. The new code will also provide for a minimum amount to be paid to operational creditors, ensuring that they receive some compensation even in case of a failed resolution.
One of the key changes proposed in the revamped code is the introduction of the concept of pre-packaged insolvency resolution plans (PIRPs). Under this system, a company in distress can prepare a resolution plan in advance and present it to its creditors for approval. This will help speed up the resolution process and minimize the losses for all stakeholders, including operational creditors.
PIRPs are expected to be particularly beneficial for operational creditors, as they will provide them with greater visibility into the resolution process and allow them to participate in the decision-making. Under the current system, operational creditors are often left out of the resolution process and have little say in the outcome.
Another important change proposed in the revamped code is the introduction of the principle of ‘value maximization’ as the primary objective of the resolution process. This means that the resolution plan will be designed to maximize the value of the company, rather than simply focusing on repaying the creditors. This is expected to result in a better recovery rate for all stakeholders, including operational creditors.
The revamped code will also introduce a new class of creditors called ‘small operational creditors’, who will have a higher priority in the resolution process. This will be particularly beneficial for small businesses and individual creditors who have often been left out of the resolution process in the past.
The proposed changes to the IBC have been welcomed by operational creditors, who see them as a step in the right direction. Many believe that the changes will provide them with greater protection and improve their chances of realizing their dues.
However, some experts have raised concerns about the potential impact of the changes on the overall resolution process. They argue that the changes may lead to delays in the resolution process and make it more difficult to reach a consensus among the stakeholders.
Despite these concerns, the government is determined to push ahead with the changes, which it sees as essential for improving the efficiency and effectiveness of the resolution process. The changes are expected to be implemented soon, after undergoing the necessary legal and regulatory approvals.
In conclusion, the revamp of the Insolvency and Bankruptcy Code in India is expected to bring about a significant change for operational creditors. The changes are designed to provide them with a more level playing field and ensure that they receive a higher recovery rate in case of default.
