Creditors Lose Faith in Insolvency Process as Delays Mount

The Insolvency and Bankruptcy Code (IBC), designed to provide a faster alternative to traditional debt recovery, is increasingly seen as a protracted process by creditors seeking to recover dues from defaulting borrowers. The lengthening resolution periods have prompted many creditors to reconsider their strategy, with some abandoning the statutory framework in favour of other collection methods.

Since its implementation, the IBC promised faster resolution compared to conventional civil litigation, which could stretch over decades. However, successive extensions granted to corporate debtors undergoing insolvency proceedings, coupled with legal challenges and procedural complexities, have significantly delayed the recovery process for creditors.

The shift away from the IBC reflects growing frustration with the system's inability to meet its fundamental objective of swift resolution. Creditors report that the opportunity cost of prolonged insolvency processes—combined with uncertain outcomes—makes alternative dispute resolution and direct negotiations more attractive, even if they yield lower recovery rates.

The trend raises broader concerns about the sustainability of India's insolvency framework. Policymakers and regulators face mounting pressure to streamline procedures and enforce stricter timelines to restore creditor confidence in the system and prevent its marginalization in the debt recovery ecosystem.