Source: Mint
Context:
The Ministry of Corporate Affairs and the Insolvency and Bankruptcy Board of India (IBBI) are exploring the introduction of a pre-insolvency early warning system aimed at identifying financial distress signals before defaults occur. This follows a suggestion by the Supreme Court during the Mansi Brar Fernandes vs Shubha Sharma & ANR case.
Key Highlights:
Objective
- Enable companies and lenders to monitor early signs of financial distress.
- Pre-empt insolvency rather than addressing it post-default under the current Insolvency and Bankruptcy Code (IBC).
- Reduce load on the National Company Law Tribunal (NCLT) by resolving issues before formal proceedings.
Proposed Features
- Early stress indicators: Financial ratios, continuous disclosure obligations, sector-specific red flags.
- Mandatory risk reporting: Directors and auditors may need to report distress signs to regulators and creditors.
- Pre-insolvency mediation and restructuring: Structured platforms for promoters, creditors, and regulators to explore solutions before default escalates.
- Sector-based triggers: IBBI could introduce industry-specific early interventions.
Insolvency and Bankruptcy Board of India (IBBI)
The Insolvency and Bankruptcy Board of India (IBBI) is the key regulatory authority overseeing India’s insolvency resolution framework under the Insolvency and Bankruptcy Code (IBC), 2016. It plays a critical role in maintaining creditor confidence, improving the ease of doing business, and strengthening the financial system’s stability.
About IBBI
- Establishment: 1st October 2016
- Statutory Authority Under: Insolvency and Bankruptcy Code (IBC), 2016
- Headquarters: New Delhi
- Parent Ministry: Ministry of Corporate Affairs (MCA)
