3 days ago
IBBI Warns Against Misuse of Bankruptcy Resolution Process
India’s insolvency regulator has warned that bankruptcy rules might sometimes be used for the wrong reasons.
The regulator is called the Insolvency and Bankruptcy Board of India.
It asked insolvency professionals to look carefully at troubled companies and their transactions.
Some people may try to use bankruptcy to avoid taxes or investigations.
Others may try to move or protect company assets from scrutiny.
The regulator listed six warning signs to help identify possible misuse.
These include very low payments to creditors and suspicious loans between related companies.
It also wants professionals to notice repeated buyers and groups of connected companies entering bankruptcy proceedings.
The Insolvency and Bankruptcy Board of India issued a circular urging insolvency professionals to watch for misuse of the bankruptcy process.
The board said the Insolvency and Bankruptcy Code may be used to dodge taxes, avoid investigations, or bypass regulatory scrutiny.
Other suspected uses include closing or merging companies without scrutiny and monetising or ring-fencing assets.
IBBI identified six warning signs, including very low creditor recoveries without proper valuation and suspicious group-company loans.
The board also cited recurring resolution applicants, related-company clusters, and links to fraud investigations as risks.
- Who
- The Insolvency and Bankruptcy Board of India and insolvency professionals.
- What
- IBBI issued a circular warning about possible misuse of the bankruptcy process.
- Where
- India.
- When
- Wednesday; the article does not provide a specific date.
- Why
- To help detect attempts to use insolvency proceedings to avoid taxes, investigations, regulatory scrutiny, or creditor accountability.
Key facts
- Issuing body
- Insolvency and Bankruptcy Board of India (IBBI)
- Relevant law
- Insolvency and Bankruptcy Code, 2016
- Audience
- Insolvency professionals
- Warning signs
- IBBI listed six indicators of possible misuse
- Possible purposes of misuse
- Dodging taxes, escaping investigations, bypassing regulatory scrutiny, and monetising or ring-fencing assets
- Creditor concern
- Very low recoveries without proper valuation were identified as a warning sign
Sources
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