IBBI promotes transparency on carry forward losses

The Insolvency and Bankruptcy Board of India (IBBI) is urging debt resolution professionals to be more transparent about bankrupt companies' past losses. These losses can be carried forward and may lower the companies' future tax liabilities. This transparency could help attract new investments and improve debt resolution plans. In an order issued recently, IBBI instructed professionals to include a separate section in their notices that details the extent of carry forward past losses available to each company. The board believes that more robust disclosures about these losses are necessary. Professionals must provide a breakdown of the amount of losses under specific tax categories and indicate how long these losses can be utilized. If a corporate debtor has no carry forward losses, the information should be clearly stated. This is aimed at helping potential resolution applicants to better understand the company's financial situation. With this knowledge, they can create more informed and feasible plans to resolve debts. Experts highlight that recent changes to the Income Tax Act allow for the carry forward of losses, even when there is a change in shareholding due to a debt resolution plan. This amendment supports distressed companies in using such losses to their advantage. IBBI’s move to enhance transparency in financial reporting is seen as a positive step. It aims to assist potential applicants in developing effective resolution plans by providing a clearer picture of the debtor’s financial status. So far, 1,068 bankrupt firms have created resolution plans, yielding creditors ₹3.55 trillion up to September 2024. The manufacturing sector represents a significant portion of these firms, making up 46% of entities rescued under the bankruptcy code.