Navigating the Data Integration Conundrum: A Closer Look at IBC

[Aayushi Choudhary and Vaibhav Gupta are fourth year students of Gujarat National Law University, Gandhinagar]

The Insolvency and Bankruptcy Code, 2016 (IBC) brought about a major change in the landscape of corporate insolvency proceedings in the country. Nevertheless, despite the IBC’s transformative potential, its effective implementation has been hampered by a significant challenge: the dispersed and fragmented structure of data on insolvency cases. Currently, data is scattered among a number of platforms, each of which performs a different function. The web portal of the Ministry of Corporate Affairs stores financial data and compliance records; the web portal of the National Company Law Tribunal (NCLT) administers case status and online orders; and the webportal of the Insolvency and Bankruptcy Board of India (IBBI) serves as a regulator’s data repository. Procedures are handled individually in respect of each of the bodies, and for debt and creditor information, IPA/Valuer Portals and National E-Governance Services Limited (NeSL) are used. Although each of these platforms has a special function, they are not integrated, which causes inefficiencies and delays in the insolvency process. The insolvency procedure is currently experiencing inefficiencies and delays due to a lack of platform interoperability. In this post, the authors have delved into the importance of consolidating IBC-related data into a single, unified platform and explored the potential benefits of such a move

Information Utilities: Accelerating Insolvency Resolution with Data Integrity

In the insolvency of Go Airlines, the Information Utility (IU) system demonstrated its remarkable efficiency. The IBBI effortlessly transferred case-related information to the NeSL via an API before the NCLT officially acknowledged the start of the corporate insolvency resolution process (CIRP). All of the corporate debtor’s bankers subsequently received emails alerting them to the imminent insolvency procedure. This demonstrates the crucial role IUs play in expediting the CIRP.

The CIRP, which is governed by section 12 of the IBC, has a strict deadline of 330 days for completion that places an emphasis on efficiency. The ambitious CIRP timeline is based on the idea that all participants will have easy access to data pertinent to the process. The idea of IUs as envisioned by the IBC serves as the foundation for this confidence. IUs must be prepared to deliver all relevant information promptly in order to adhere to the rigid IBC timeframe. To fulfill these deadlines, it is imperative that all parties, including creditors, adjudicating authorities, and insolvency resolution professionals, have quick access to pertinent information. IUs play a crucial role in speeding the CIRP timeline by acting as an essential repository of verified data about debt and defaults.

IUs also support insolvency professionals throughout the CIRP. All financial creditors are required by the IBC to provide the IU with information. In 2017, the Reserve Bank of India (RBI) issued directives to banks, non-banking finance companies (NBFCs), and asset reconstruction firms (ARCs) to ensure legal compliance. As a result, the IU keeps almost all of the information provided by corporate entities and creditors. Insolvency professionals can access the IU to examine the information with claims submitted by creditors after the general announcement, streamlining the claims verification procedure. An important step in accelerating the process of authenticating and verifying data regarding debtor default in insolvency cases was taken by the IBBI circular dated September 7, 2019. In order to expedite the debtor default verification procedure, it has reinforced the function of IUs by enabling them to retrieve the data from the Central Registry of Securitization Asset Reconstruction and Security Interest (CERSAI) portal. For the objective of registering security interests created on movable and intangible assets, such as accounts receivable, book debts, and hypothecation, as well as to begin registering all other kinds of mortgages used in India, CERSAI is a central online security interest registry established under the provisions of Chapter IV of the SARFAESI Act.

Advancing IBC Through Data Integration

The present system suffers from data duplication, disparate structures, and limited processability. To overcome these challenges, integrating data across various systems into a comprehensive IT framework for IBC processes is essential. Such integration offers numerous advantages, including a single source of truth throughout the insolvency process, real-time dashboards for data-driven decision-making, prioritization of security and privacy by design, maintenance of audit trails for transparency, and efficiency gains through streamlined data management.

To address these challenges, it is imperative to streamline and centralize the data. Leveraging the MCA-21 database, a vital resource, can aid in the early identification of companies at risk of insolvency. The MCA launched an e-government programme called MCA21 which allows business organizations, employees, and Indian residents to easily and securely access MCA services. It provides essential data points, such as financial ratios, operational indicators, audit qualifications, and compliance issues, which are invaluable for proactively detecting companies in financial distress. Additionally, the MCA21 database can help identify sectors and industries prone to financial stress, using factors like insolvency numbers, debt levels, resolution times, and recovery rates, enabling policymakers to formulate sector-specific interventions.

The CARO (Company’s Auditor Report Order) report, prepared by auditors, can provide insightful inputs for policy making. It assesses a company’s ability to continue as a going concern, the quality of internal controls and financial reporting, and compliance status, all of which guide policymakers in addressing financial stress. Data from NCLT and IBBI can be used to review IBC process outcomes, identify bottlenecks, analyze delays, and address stakeholder-specific issues. Moreover, examining post-insolvency resolution data, including production, revenue, bank financing, capital investments, and credit appraisal insights, aids in evaluating the effectiveness of the insolvency process and contributes to orderly credit growth in the economy.

Recommendations

A data-driven approach is fundamental for shaping effective insolvency law and enacting meaningful reforms within the insolvency landscape. To combat the existing challenge of scattered information sources across the IBC framework, a unified platform is imperative. This platform should be designed as a comprehensive IT framework for all IBC processes, providing seamless access to critical data. Data accessibility, analysis, and security can all be improved by utilizing cutting-edge technology such as blockchain, AI, big data analytics, and the Internet of Things.

In addition to technological advancements, state-level investments in data collection systems are crucial. States can establish these systems by building upon existing infrastructure, creating a sophisticated mechanism for collecting insolvency-related data. A pivotal initial step in this process involves assessing the wealth of information sources already available, including general insolvency statistics, judicial data, and statistics provided by insolvency regulators and other relevant authorities. For instance, the MCA21 database presents a valuable resource for policymakers. This database can be harnessed to establish early warning systems based on various financial indicators, operational metrics, audit qualifications, and compliance records. These proactive systems enable the identification of companies at risk of insolvency well in advance. Additionally, by utilizing MCA21 data, policymakers can identify specific sectors and industries that are susceptible to financial stress, facilitating the formulation of tailored policy interventions. These interventions can address critical factors like insolvency rates, debt burdens, resolution timelines, and recovery rates.

Furthermore, the foundation of sound insolvency policies relies on the collection and thorough analysis of empirical data. This approach ensures that legislative changes are precisely tailored to resolve particular problems within the insolvency framework. Regular compilation and analysis of data offer valuable insights that inform the design of reforms and gauge their effectiveness. This iterative process creates a feedback loop, reinforcing the impact of legislative interventions. In an era characterized by the prominence of big data, policymaking in the absence of empirical data must be avoided to prevent inefficiencies and potential adverse consequences.

Conclusion

The role of information as a crucial utility in CIRP cannot be overstated. The expeditious resolution of insolvency cases, particularly within the mandated 330-day timeline, is heavily reliant on the availability and accessibility of comprehensive information. When all relevant data and documents are conveniently aggregated in one central repository, it empowers resolution professionals with the essential tools needed to navigate complex insolvency proceedings efficiently. The centralized information hub will serve as a vital resource, providing resolution professionals with a holistic view of the distressed entity’s financial history, assets, liabilities, contracts, and operational intricacies. Such a comprehensive repository not only streamlines decision-making but also significantly reduces the time and effort required to gather scattered information from various sources. Armed with a comprehensive information pool, they can make informed decisions promptly, engage stakeholders more efficiently, and ultimately expedite the resolution process. This, in turn, aligns with the overarching goal of the insolvency framework – to maximize value for creditors and stakeholders while ensuring timely closure of insolvency cases.

In conclusion, consolidating and integrating IBC-related data into a unified platform is not merely a technological upgrade; it is a critical step towards ensuring the IBC’s success in promoting economic stability and growth in India. This move will streamline the insolvency process, facilitate policy interventions, and enable efficient decision-making, ultimately benefiting all stakeholders in the insolvency ecosystem.

– Aayushi Choudhary & Vaibhav Gupta