New era of reforms: The Bankruptcy

New era of reforms: The Bankruptcy & Insolvency Code 2016

The Insolvency and Bankruptcy Code 2015 is expected to address the problem of dealing with multiple laws for anyone wanting to do business in India. The present government has realised that the ease of doing business is not only about convenient entry into the market but also providing easy exit and restricting debt.

One of the most important reform envisaged in this bill is to make substantive changes in eleven enactments and repealing some to avoid conflicting rules. There is also provision to takeaway the jurisdiction of the civil court to ensure fast and effective process. Specialised adjudicating authorities like NCLT and DRT will be adjudicating authorities to deal with special corporate issues effectively.

The bill prescribes the time limit for procedures at every stage to ensure a result in 180 days. It also has provisions for force majeure and one time extension of 90 days in certain circumstances. There is also a fasttrack option with a 90-day limit and a single extension of 45 days if needed. Today, it’s not only important to have a law to ensure repayment of debt but also to ensure timely repayment.

To ensure effective implementation of the procedure prescribed under the bill, there is provision for establishment of a new board to deal with this specialised matter because strong financial institutions have a major role in sustainability of the economy of any country, which will be ensured after enactment of the bill. Another unique feature of the bill is that it gives right to operational creditor to initiate procedure and the right is not limited to big creditors only who want their money back.

The operational creditor will also have a say in the procedure. Workmen and other employees have priority as per the bill. This code is here to say, “enough playing around with scattered laws and living a lavish life with unlimited debt.” There will be a limit in waiting for repayment of debt. In short, either restructure, repay or windup. One of the unique features of the bill is to establish an information utility for collection of all authentic information at one place.

It is a new concept in India that will facilitate one to check the information before investing. It will consequently ensure one’s investment is secured. Information utility will collect, collate, authenticate and disseminate financial information to facilitate insolvency, liquidation & bankruptcy. The bill has provisions for the creation of a class of professionals, who will be specialised in dealing with such matters and will be accessible to the persons who need them because they will be registered with the agency as ‘insolvency resolution professionals’, who will ensure an efficient, effective and professional handling of repayment of debt.

One of the most important challenges before investors was to deal with bad debt in India with assets outside Indian jurisdiction. The bill has provisions to tackle issues of cross-border insolvency. If one cannot repay debt, then assets situated outside India can also be considered for repayment if the Indian property is insufficient.
For this purpose, two provisions have been included and details will be available in rules framed subsequently for the legislation. The bill, in short, will ensure that creditors are secured in India and could usher in a new economic era, where India could attract investors more than ever.

The Economic Times New Delhi,10th May 2016