The Insolvency and Bankruptcy Code (the Code) is seen as a welcoming step to address the problem of stressed assets for investors and lenders. A key mechanism which the Code envisages is the formation of Information Utilities (IU). IU would be the entities that would act as data repositories of financial information which would receive, authenticate, maintain and deliver financial information pertaining to a debtor with a view to facilitate the insolvency resolution process in a time bound manner.

Eligibility and Constitution

According to the Rule 3 of Insolvency and Bankruptcy Board of India (Information Utilities) Regulations 2017, a public company having a net worth of more that Rs 50 crore can apply to set up an IU. Ordinarily, no single person can hold more than 10% of the paid-up equity share capital of an IU1. However, there are exceptions defined in case of Government Companies, Banks, Insurance Companies, Stock Exchanges and Public Financial Institutions. Also, among other requirements, more than half of its Directors on the Board should be Independent Directors2.

Scope of Services

The IUs are expected to provide a host of services to fast track and make efficient the entire resolution process by ensuring that the data is validated and available at request to facilitate quick resolution. Key services which the IU is expected to deliver are:

  • Accepting, recording and maintaining electronic record of financial information pertaining to companies availing lending facilities;
  • Validating the data submitted;
  • Providing access/ data to the information available.

Benefits

The IU is expected to record and validate all financial information pertaining to a debtor. The financial information so recorded will include the details of loans availed, defaults, charges, etc. Availability of such information, which is pre validated, will prove to be beneficial not just in case of insolvency resolution but also while advancing credit by any lender. Key benefits that can be expected are:

  • Better decision making by lenders while advancing loans
  • Opportunity for debtors to raise disputes, if any, regarding the information available
  • Faster resolution with all pre-validated information available at one place

Challenges

While there are immense benefits which result from the smooth functioning of the IU, the road is not without challenges:

  • Data integrity: An IU will receive data from multiple sources and expected to maintain a single and validated version of the same.
  • Data Security: Any data breach or misuse will seriously dent the user confidence and would bring the other useful entity to a naught.
  • Access/ availability: The relevant data, unless available, when requested would be of no use.

Current Status

In June 2017, National e-Governance Services Ltd. (NeSL) became the first entity to have received the inprinciple approval for establishing an IU. Over 80 percent of its shareholding is currently held by major Government Financial Institutions like State Bank of India, Life Insurance Corporation, Canara Bank and Bank of Baroda.

Conclusion

Creation of an IU is important step towards effective management of the insolvency resolution process. There is no doubt about the significance of the IUs; however, it may take a while before they become relevant. Over a period of time the data available with the IUs will grow in size and if they are able to ensure necessary safeguards then they are bound to be an important pillar in the overall resolution process.

Footnotes

1 Rule 8 of the Insolvency and Bankruptcy Board (Information Utilities) Regulations 2017.

2 Rule 9 of the Insolvency and Bankruptcy Board (Information Utilities) Regulations 2017.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.