Moneycontrol Bureau
Lok Sabha on Thursday passed the Insolvency and Bankruptcy Bill 2015 paving the way for creating a formal insolvency resolution process for businesses, either by liquidation of assets or charting out a sustainable survival mechanism.
What does the Bill do?
The Bill attempts to simplify the process of bankruptcy proceedings by streamlining and consolidating different laws that exist pertaining to bankruptcy.It provides an easy way out for insolvent and ailing companies. The Code enables prompt and timely action during early-stage debt defaults, thereby maximising the recovery amount.A new regulator —Insolvency and Bankruptcy Board of India — is likely to be set up for dealing with bankruptcy proceedings.It will also create a formal insolvency resolution process (IRP). Aren't there enough laws already?Currently, there are several laws such as Companies Act and Sick Industrial Companies Act that govern bankruptcy proceedings. But such laws are complicated and at times ask for lengthy proceedings. Will there be separate tribunals?Yes. The National Company Law Tribunal (NCLT) will adjudicate insolvency resolutions for companies. The Debt Recovery Tribunal (DRT) will adjudicate insolvency resolution for individuals.
What do creditors stand to gain?
The Bill gives a leg-up to creditors as it cuts the red tape and holds promoters directly accountable for financial lapses.
Who can initiate the IRP?
Any company or debtor defaulting on dues can inititate IRP, besides lenders or creditors.
What is the timeframe for completion?The process is to be completed within 180 days from the initiation of IRP. If creditors agree that the case is complex, a one-time extension of up to 90 days can be granted.
What happens if the case is not solved?If the insolvency cannot be resolved, the assets of the borrowers may be sold to repay creditors.
Within theses 180 days, 75 percent of the creditors must agree on a revival plan. Else, the firm’s assets will be liquidated.
Insolvency professionals, or adjudicators, armed with greater powers can begin criminal proceedings if they find promoters of debtors liquidating assets.
The Silver Lining
The Code can help alleviate bad loan issues faced by public sector banks.
It also allows enterprenuers a fresh lease of life as the law underlines that ventures can fail.
Employee interests are safeguarded as money due to them from provident fund, pension fund and gratuity funds won’t be included in the liquidation assets of the bankrupt.The Downside
Critics say the Bill promotes an easy way out for companies to give pink slips to employees.
What Next?
The Code now goes to the Rajya Sabha for approval.
Implementation of the code before May 31 2016, will improve India’s rankings on World Bank’s ease of doing business index.
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