Lok Sabha clears bankruptcy code
Amid a surge in bad loans, the Lok Sabha on Thursday approved a Bill to overhaul century- old laws that regulate insolvency. The proposed Insolvency and Bankruptcy Code aims to slash the time it takes to wind up a company or recover dues from a defaulter. The Bill will become a law once the Rajya Sabha clears it.
The proposed uniform law will streamline the existing insolvency process which depends on 11 separate laws. Minister of State for Finance Jayant Sinha, while answering queries from fellow lawmakers, described the Code as “ transformational” and said it would help India improve its ranking in the World Bank survey on ‘ ease of doing business’.
To a query on whether the new legislation would help in taking the overseas assets of wilful defaulters, Sinha said in this regard first cross- border treaties need to be put in place. “ We have to make crossborder treaties. We have to have an understanding with other nations that we are taking action on this defaulter. When we have a good law like this in which the other nations will be clear that by due process of law we are taking action, then they will also believe us and they will cooperate with us in attaching the assets and properties in their countries,” he said.
“The Insolvency Bill is a landmark legislation which creates a common process for all creditors to interact with a company that has defaulted on its obligation and should go a long way in speeding up the resolution process for stressed assets in the country,” said Varun Gupta, partner, deal advisory, KPMG.
“This legislation is a huge step towards ease of doing business in India and will over a period of time bring business practices in India closer to more developed markets,” he added.
“A comprehensive code for resolution of distress is the need of the hour and it’s adecisive and commendable step by the Lok Sabha. Once enacted into law, it hopefully will have a far reaching impact on ease of doing business in India,” said Ashwin Bishnoi, partner at Khaitan & Co.
Among other recommendations, the Bill proposes an insolvency regulator for oversight. It lays down a transition provision during which the central government will exercise all the powers of the regulatortill the time one is set up.“This will enable quick starting of the process on the ground, without waiting for the proposed institutional structure to develop,” the report states. The Bill recommends the existing Debt Recovery Tribunals to be the adjudicating authority for individuals and unlimited liability partnership firms. The National Company Law Tribunal would be the adjudicating authority for companies and limited liability entities. It also proposes setting up of information utilities, to collect and collate financial information from listed companies and their creditors.
“There is a significant amount of work still to be done in creating the insolvency practitioners ecosystem, the tribunals and the operating guidelines over the next few months, but boards of companies will have to start re- examining how they deal with all classes of creditors once the Code comes into place,” KPMG’s Gupta said.
The Code was tabled in Parliament in the Winter Session and was immediately sent to a joint committee for investigation. The panel comprises 20 members of Lok Sabha and 10 members of Rajya Sabha and is headed by Rajya Sabha MP Bhupender Yadav.
The panel suggested a number of key changes to the Bill, including provisions for dealing with cross- border insolvency, an increase in workers’ outstanding dues, and providing agreater voice to operational creditors like employees and suppliers of a bankrupt entity.
Business Standard New Delhi, 06 May 2016