Settlements and Resolutions Under the Insolvency and Bankruptcy Code: Assessing the Impact of Covid-19

Abstract

In this study, we develop a model to examine the dynamics of the insolvency and bankruptcy code (IBC) processes in the aftermath of Covid-19. We use the model to study the impact of the pandemic on the following aspects of the financial disputes and their implications: number of disputes between debtors and their creditors in the aftermath of Covid-19; frequency of these disputes coming to the National Company Law Tribunal (NCLT); impact of the pandemic on the frequency of ‘out of court’ settlements; the nature of disputes settled amicably and those adjudicated under the corporate insolvency resolution process of the NCLT; and the recovery rates in the settled versus litigated disputes. We show that while the number of disputes will go up, the frequency of settlements will come down in the post-Covid world. Moreover, the post-pandemic legal changes made to the IBC are detrimental to the interest of the micro, small and medium enterprises and also for the formal and informal sector employees. We offer suggestions for promoting out-of-court settlements to save time and costs of the parties involved. Our suggestions related to public policy can help mitigate the macroeconomic costs of the pandemic.

Keywords: Covid-19, IBC 2016, NCLT, Insolvency; Liquidation; Out of Court Settlements; Litigation; Debtor; Creditor, NPAs

JEL Classification: K00, K22, K41, G21