The Insolvency and Bankruptcy Code (IBC) has often been criticised for missing statutory timelines and delivering lower recoveries than originally envisioned. Tribunal delays have understandably attracted most of the attention. However, focusing only on delayed hearings risks overlooking a deeper problem.

Even if every National Company Law Tribunal (NCLT) suddenly began disposing of cases within 330 days, several structural issues would continue to limit the effectiveness of the insolvency framework.

The next phase of reform therefore cannot be confined to increasing tribunal capacity. It must address the economic incentives, procedural asymmetries and governance gaps that have gradually emerged over the last decade.

The IBC Is Increasingly Receiving Only the Hardest Cases

One of the least discussed developments is the phenomenon of adverse selection.

In the early years of the Code, many distressed companies still possessed valuable businesses capable of attracting strategic buyers. Today, that is increasingly changing.

Companies with viable business models often succeed in raising private credit, negotiating one-time settlements, refinancing their debt or restructuring outside the IBC before formal default.

By the time many companies enter insolvency proceedings, they have already exhausted most commercial alternatives. Valuable employees may have left, customers shifted elsewhere and operating assets deteriorated.

In other words, the IBC is increasingly receiving the most distressed companies rather than the most salvageable ones.

This naturally depresses recovery rates and creates a dangerous perception that the Code itself has become ineffective, when in reality the quality of cases entering the system has materially changed.

Unless this trend is recognised, performance statistics may continue to worsen even if tribunal efficiency improves.

Resolution Applicants Carry an Unequal Burden

The Code also creates an imbalance for serious investors attempting to acquire distressed companies.

Once the Committee of Creditors approves a resolution plan, the successful resolution applicant remains committed to the transaction.

However, judicial approval may take months or even years.

During that period, interest rates may change dramatically, commodity prices may fluctuate, business conditions may deteriorate and asset values may move significantly.

Yet the resolution applicant has virtually no corresponding right to reconsider commercial terms.

The investor bears the entire burden of uncertainty while remaining legally bound to a bid submitted under entirely different market conditions.

Such asymmetry inevitably discourages credible strategic investors from participating in the insolvency process.

A modern insolvency regime must protect both creditors and genuine bidders.

Governance Problems Continue Even After Acquisition

One of the less visible weaknesses of the current framework emerges after a successful acquisition.

In a conventional merger or acquisition, new owners can generally replace directors and assume management immediately after closing.

Under the IBC, however, the transition is often far less straightforward.

Legacy directors may continue appearing on statutory records.

Resolution applicants frequently encounter delays in updating corporate filings.

Administrative uncertainty continues long after the insolvency process formally concludes.

Similarly, outgoing promoters sometimes fail to hand over complete books of account, statutory records, passwords, operational data or physical possession of business premises.

Without complete information, resolution professionals struggle to prepare accurate information memoranda.

Without reliable information, prospective buyers naturally become more cautious.

The consequence is lower participation and reduced competitive bidding.

Litigation Has Become a Strategy Rather Than a Defence

Every legal system recognises the right of affected parties to challenge decisions.

However, insolvency proceedings present a unique commercial reality.

Time itself has economic value.

When objections carry little financial consequence, delay becomes a rational strategy.

Technical objections.

Repeated procedural applications.

Collateral litigation.

Guarantor disputes.

Each additional proceeding extends uncertainty while the value of the underlying business continues to erode.

This is particularly evident in personal and corporate guarantor proceedings, where multiple legal challenges increasingly operate alongside the main insolvency process.

Instead of facilitating resolution, parallel litigation frequently becomes an additional obstacle to recovery.

Introducing meaningful costs for frivolous or vexatious litigation may therefore prove just as important as expanding tribunal capacity.

The Shift Away From the IBC Should Not Be Misunderstood

The decline in insolvency admissions does not necessarily mean that Indian businesses have become financially healthier.

Instead, creditors have increasingly shifted towards alternative mechanisms.

SARFAESI proceedings.

One-time settlements.

Debt refinancing.

Inter-creditor agreements.

Asset Reconstruction Companies.

The Reserve Bank of India’s Prudential Framework.

Commercial negotiations.

From the perspective of lenders, this behaviour is perfectly rational.

Where a commercially viable settlement can be achieved faster outside the IBC, there is little incentive to pursue lengthy insolvency proceedings.

However, this shift also creates a long-term institutional risk.

If the strongest lenders and the healthiest distressed companies increasingly avoid the Code, the IBC risks becoming a forum reserved largely for the weakest and least recoverable businesses.

Performance statistics would then continue to deteriorate irrespective of future reforms.

Recovery Is Gradually Replacing Revival

Perhaps the most significant philosophical shift concerns the objective of insolvency itself.

The original vision of the IBC was corporate rescue.

Banks increasingly operate with a different priority.

Commercial recovery.

When lenders understandably prefer the proposal offering the highest immediate recovery, the distinction between resolution and liquidation gradually begins to blur.

The insolvency process starts functioning more as a debt recovery mechanism than as a framework for preserving businesses, protecting employment and sustaining economic value.

This subtle shift deserves greater policy attention because it influences every commercial decision taken within the insolvency ecosystem.

Reform Must Go Beyond More Benches

Increasing the number of NCLT benches remains essential.

Yet capacity alone cannot solve every problem.

Several targeted reforms deserve equal consideration.

Financial creditor petitions based on objectively established defaults should move into insolvency without prolonged preliminary disputes.

Resolution plans approved by the Committee of Creditors should face clearly defined timelines for judicial approval, reducing prolonged uncertainty after commercial decisions have already been made.

Where approval extends beyond a reasonable statutory period, resolution applicants should have the option to reconsider, renegotiate or withdraw their bids.

Operational creditors require genuinely summary procedures if they are to regain confidence in the insolvency framework.

Finally, the law should create stronger statutory mechanisms compelling outgoing promoters to cooperate fully with resolution professionals while ensuring smooth transfer of management and corporate records.

The Way Forward

The first decade of the Insolvency and Bankruptcy Code transformed India’s credit culture.

The second decade must focus on strengthening its institutions.

The debate is no longer about whether the IBC was a visionary reform.

It unquestionably was.

The challenge now is ensuring that the institutional machinery surrounding the Code becomes as efficient as the legislation itself.

Without those reforms, delays will continue to erode value, discourage investors and gradually weaken the very deterrent effect that made the IBC one of India’s most significant economic reforms.

The Insolvency and Bankruptcy Code does not require a new philosophy.

It requires a stronger system capable of delivering the philosophy it already contains.