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“Data is the new oil,” British mathematician Clive Humby said in 2006, according to media reports.
Several years later, Indian oil-to-telecom conglomerate Reliance Industries Ltd.’s Chairman & Managing Director Mukesh Ambani echoed the sentiment, saying “Data is indeed the new oil."
The Indian billionaire businessman, who spoke at an event, however, said that this new oil is fundamentally different from traditional oil, which was extracted at select places and thus, it created wealth only for a few countries.
"In contrast, the new oil i.e., data, can be generated and consumed everywhere and by everybody. It has the potential to create value equitably across sectors, across geographies and across economic classes,” Ambani said at the event.
India, which enacted its first comprehensive bankruptcy law – Insolvency and Bankruptcy Code (IBC) in 2016 – is very well aware of the importance of data and how it can be exploited to improve the overall corporate insolvency resolution process (CIRP).
"The code [IBC] is considered as one of the most important economic reforms aimed at improving the ease of doing business in the country,” Insolvency & Bankruptcy Board of India (IBBI) Whole Time Member Jayanti Prasad said at India’s second international research conference on bankruptcy recently. The research conference was jointly organized by IBBI and the Indian Institute of Management, Bangalore (IIMB).
The resolution plans materialized under the IBC have helped creditors realize a total of 2.53 lakh crore rupees ($31 billion) until 2022 since the inception of the bankruptcy law in December 2016, according to the IBBI data. A total of 6,199 CIRPs commenced by the end of December 2022, and of these, 4,199 cases have been closed, the data showed.
CURRENT STATUS
The IBC has already undergone many amendments since its inception to improve the insolvency resolution process and the government recently proposed several changes to strengthen the functioning of the law. These proposed changes will be implemented in due course.
The effectiveness of the insolvency resolution process, however, currently continues to be marred by several challenges due to various stakeholders and lack of an integrated platform to smoothen the process.
The insolvency-related data is currently scattered across various organizations and there isn’t any unified system, which will bring all the data under one umbrella, or at least make data talk to each other, Prasad said at the insolvency and bankruptcy research conference.
The various stakeholders of IBC ecosystem are Parliament, Ministry of Corporate Affairs (MCA), adjudicating authorities (AAs), IBBI, insolvency professional agencies (IPAs), information utility, registered valuer organizations (RVOs), insolvency professionals (IPs), registered valuers (RVs), debtors, creditors and investors.
IBBI Executive Director Sandip Garg said the insolvency regulator is finding it difficult to link its data with the National Company Law Tribunal (NCLT) as the tribunal data doesn't capture the permanent account number (PAN) of the parties involved in the case. IBBI is trying to find out a way to achieve this, he added.
MCA Joint Secretary Anita Shah Akella, who also participated in the bankruptcy conference, said there's no data integration at one place and the data is currently available in different IT systems of the NCLT, MCA, IBBI, IPA, valuer and National E-Governance Services Ltd. (NeSL), India's first information utility.
"There's a lot of potential that every aspect of the data should be captured, but that is still not being done," she added.
Prasad said that in today's digital era, an integral part of piloting a successful organization involves gathering accurate and reliable data that can be analyzed to gain greater insights, which can help in policy-making.
DATA POTENTIAL
“The potential inputs that we can take from the MCA21 [portal] is to design an early warning system,” Akella said.
The MCA21 database, which offers all company related information to various stakeholders, can provide specific data points that can be used to develop early warning systems for identifying companies that are at risk of going insolvent, she added.
For example:
Financial ratios like debt-to-equity ratio and interest coverage ratio.
Operational indicators like inventory turnover and days sales outstanding.
Audit qualifications and internal control deficiencies reported in the company's financial statements.
Changes in the key management personnel, auditors and impact of the corporate governance.
Late filing of financial statements or non-compliance with statutory requirements.
Akella said the MCA21 database can also be used to identify sectors and industries, which are prone to financial stress, and devise a sector specific policy intervention.
She said some of the data points that can be used to spot sector-related financial stress are:
The number of companies in a particular sector that have filed for insolvency or have undergone restructuring. For example: real estate sector.
The total amount of debt outstanding in a particular sector.
The average time taken for insolvency resolution in a particular sector.
The recovery rate of creditors in a particular sector.
Changes in valuations of sector specific assets.
The CARO Report, a statutory report that is prepared by the auditor of a company, is also a good source for policy-making, Akella said.
The CARO Report can provide valuable inputs to the policy-making related to resolving financial stress in companies by identifying the causes of financial stress, developing early systems and assessing the impact of policy interventions, she said in a presentation.
Akella said some of the specific inputs that can be used for this purpose are:
The auditor’s assessment of the company’s ability to continue as a going concern.
The auditor’s assessment of the adequacy and effectiveness of the company's internal controls and risk management systems.
The auditor’s assessment of the quality of the company's financial reporting, its compliance with legal and regulatory requirements and the debt servicing ability.
Prasad said that the work on creating an integrated platform is ongoing that would support easier access and also facilitate meaningful policy oriented research.
INTEGRATED PLATFORM
India is eyeing to overhaul the insolvency process by integrating data from various stakeholders to improve transparency and detect early signs of financial distress on corporate debtors. This will help improve the overall resolution process and also give creditors an opportunity to take immediate course correction before things go out of hand.
The government, which has proposed several changes to the bankruptcy law, is looking to streamline the IBC ecosystem technology.
The proposed changes related to this are:
Developing an integrated electronic platform to handle several processes under the code with minimum human interface.
The e-platform may provide for a case management system, automated processes to file applications with AAs, delivery of notices, enabling interaction of IPs with stakeholders, and storage of records of corporate debtors undergoing the process.
The e-platform may also allow regulators and AAs to exercise better oversight over their respective domains of functioning through the consolidated information.
THE VISION
The government aims to have a comprehensive IT framework for various processes and filings under IBC and regulations made thereunder along the lines of MCA21.
Akella said the MCA, which is looking at digital first e-governance, plans to integrate the available data across different systems into one IT platform for the entire IBC process.
“We are looking for technological solutions and capabilities for auto pilot surveillance systems, system-driven compliance checks, [and] seamless data dissemination,” she noted.
The MCA aims to disseminate seamless data to its stakeholders and other regulators through advanced technological solutions, as well as facilitate analytical and business intelligence capabilities for all stakeholders.
"It would be able to help us identify where the flaws in the system are and probably correct them," Akella said.
Akella said the government has proposed a case management system for the IPs, covering the entire procedure of the resolution process. At each of the stages, the data captured in the system will be made available to the IBBI, MCA, NCLT and enable the government to take the policy calls, she added.
Akella also said there's an e-court system for the adjudicating authority, but it is still not fully in use and the government is looking to make this fully functional by integrating with the IBBI and MCA database.
PROPOSED IT SYSTEM BENEFITS
Akella said the government is looking to leverage blockchain technology, artificial intelligence, big data analytics and Internet of Things to achieve its vision of developing a comprehensive IT framework for various IBC processes.
She said the proposed IT system will offer several advances such as:
“Single source of truth” across the insolvency and bankruptcy process.
Availability of real-time and analytical dashboards for data-driven decision and policy-making.
Access to the state-of-the-art IT ecosystem built on “security and privacy” by design principle.
Notification and alerts as per the predefined IBC processes and associated timelines.
Availability of audit history and log of all the transactions.
Efficient IT system for consistency, reliability and minimum repetitive data and information.
Transparency – Timely & accurate dissemination and disclosure of information, data and decision progress.
Akella said the government is also considering developing a mobile app at a later date that could be used by the IPs and corporate debtors about the progress of the insolvency resolution process.
"We hope that we should be able to achieve [all this] maybe in one-to-two years," she concluded.
(Note: $1 = 81.809 Indian rupees)
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