Resolution Bazaar

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• AI-POWERED IBC-AGENTS
• Corporate Insolvency Resolution and Liquidation processes are complex and involve legal, regulatory, and financial challenges. These processes are designed to streamline the resolution/liquidation of distresses companies; however, the insolvency professionals often face overwhelming workloads due to regulatory filings, legal queries, and claims management.
• AI-powered “Insolvency Agents” can help all the stakeholders including insolvency professionals, lawyers, creditors, etcto navigate these processes more efficiently. IBC agents can be designed in various formats to automate IBC processes, improving accuracy and timeliness while reducing the burden on the professionals.
• Insolvency professionals are already leveraging generative AI applications like ChatGPT to enhance efficiency, accuracy, and decision-making in their day-to-day operations. However, their current use of such tools is largely limited to summarizing voluminous legal judgments and to some extend enhancing legal research by identifying relevant case laws and statutory provisions.
• A considerable number of AI use cases remain unexplored, and their strategic deployment holds the potential to significantly enhance the efficiency and outcomes of insolvency processes.
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• GAMES IBC STAKEHOLDERS PLAY
• IBC stakeholders continue to manipulate the resolution processes and engage in various ‘games’ in order to protect their interests.
• Suspended directors or corporate debtors often engage in various tactics to obstruct the insolvency resolution process. They continue to conceal their assets or transfer assets to diminish the value of the estate, making it harder to realise and maximise value of the CD. Filing of frivolous litigations is a common tactic in order to prolong the processes. They attempt to undermine the role of the insolvency professional, by means like non-cooperation to disrupt the structured resolution process.
• Resolution applicants have been found to collaborate with other co-applicants in order to submit lowball offers in their resolution plans and trying to push the CD to Liquidation, with an aim to acquire control of the distressed company at minimal cost. Inclusion of ambiguous clauses in the resolution plans is also a common practice, leaving room for interpretation to be exploited during plan implementation. They have been found to resort to unnecessary litigation after plan approval, using legal tactics to delay implementation and gain leverage in plan implementation.
• Creditors have also been found to engage in ‘strategic-games’ in order to maximize their recoveries or influence outcomes. Such tactics include claim inflation, where penalties or exaggerated amounts are added to their claims to secure higher payouts, manipulation of their status by misrepresenting unsecured claims as secured to gain priority in the resolution process. Delay in the submission of claim documents is another strategy often used to avoid thorough scrutiny and potential rejection of inflated claims. Additionally, creditors have been found lobbing with other members of the Committee of Creditors (CoC) to sway decisions in their favour, potentially compromising the fairness and transparency of the process.
• Forensic Auditors have been found to be influenced by erstwhile management of the CD to align their findings with management's desired outcomes. They have been found to provide selective reporting, where unfavourable information is intentionally concealed from the Committee of Creditors (CoC), thereby hindering informed decision-making and compromising the transparency and fairness of the process.
• Registered Valuers have been found to manipulate asset valuations, undervaluing or overvaluing assets to favour particular creditors or resolution applicants. In some cases, the valuation process has been intentionally delayed, stalling the progress of the resolution. Additionally, asset valuers might collude with certain stakeholder, providing appraisals that disproportionately benefit those those stakeholders, thereby compromising the impartiality and integrity of the valuation process.
• Although several safeguards have been devised by the Insolvency and Bankruptcy Board of India (IBBI) over the past several years - such as regulatory oversight by the National Company Law Tribunal (NCLT), transparency requirements, and a code of conduct for insolvency professionals and Committee of Creditors (CoC) members—these measures have their limitations. Despite these safeguards, stakeholders continue to exploit loopholes and game the system, employing tactics that delay or derail the insolvency resolution process.
• These persistent challenges highlight the need for advanced solutions, and technologies like AI agents to address many of these inefficiencies. AI agents can enhance transparency, reduce biases, and improve the speed and accuracy of critical tasks such as data analysis, asset valuation, fraud detection, and workflow management. By leveraging these technologies, the insolvency resolution process can become more efficient, equitable, and resistant to manipulation, ensuring successful outcomes for all stakeholders involved.
• CONCLUSION
• Artificial intelligence has gained considerable acceptance in legal fields, including insolvency, particularly in developed nations like the United States and the European Union. Numerous firms have successfully deployed AI tools such as Data 61, DataLex AI, and ROSS, which specialize in advanced analytics, scenario modelling, and financial performance predictions, proving beneficial for insolvency law enforcement. A notable example is LDM Global, which developed the AI tool “Accelerator.” This tool has significantly contributed to the firm's ability to deliver successful outcomes in insolvency proceedings.
• Several countries are actively integrating artificial intelligence (AI) into their insolvency processes to enhance efficiency and accuracy. For instance, Portugal has implemented the Citius platform, which facilitates communication between parties and the court, streamlining insolvency proceedings. Similarly, Finland utilizes the KOSTI platform to improve efficiencies in insolvency cases. In Colombia, the government has approved the use of AI in the insolvency portal (MI) used by the bankruptcy court, automating non-discretionary decision-making and expediting case processing. In 2021, the Colombian government introduced a decree authorizing the use of AI in managing insolvency processes, responding to the economic challenges of the time. Similarly, the United Kingdom launched its “National AI Strategy” in the same year, aimed at establishing a comprehensive framework for AI governance. This initiative explicitly supported the use of AI in law enforcement, including insolvency-related matters.
• These advancements demonstrate a global trend towards adopting AI in insolvency law enforcement, aiming to improve the speed and effectiveness of insolvency proceedings. It is time to make the use of AI agents mandatory in the IBC process and ensure their integration into insolvency proceedings for greater efficiency, transparency, and accuracy. By leveraging AI tools, India can address challenges such as delayed resolutions, fraudulent activities, and the overwhelming volume of financial data that professionals must analyse. Mandating AI adoption will enable resolution professionals to streamline compliance, automate documentation, detect anomalies, and improve stakeholder communication. Additionally, the use of AI can foster better decision-making by providing data-driven insights, enhancing asset valuation accuracy, and forecasting recovery outcomes. This shift would not only align India with global best practices but also strengthen its insolvency framework to ensure faster, fairer, and more reliable resolutions, ultimately boosting investor confidence and economic stability.

REFERENCES

•	https://techcommunity.microsoft.com/blog/azure-ai-services-blog/introducing-azure-ai-agent-service/4298357.
•	https://learn.microsoft.com/en-us/azure/cosmos-db/ai-agents
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•	https://www.iiipicai.in/wp-content/uploads/2023/08/46-51-Article-Data-Driven-IBC-Atul-Grover.pdf
•	https://www.iiipicai.in/wp-content/uploads/2022/05/36-42-Article-eXtensible-Insolvency-Reporting-Language-XIRL-%E2%80%93-Atul-Grover.pdf