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Changes to Insolvency Law in India

Changes to Insolvency Law in India

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The government has proposed more than 40 amendments to the Insolvency and Bankruptcy Code (IBC), which came into force in 2016, and has invited public comments on these changes.

About IBC

  • Insolvency and Bankruptcy Code 2016 was implemented through an act of Parliament.
  • The law was necessitated due to a huge pile-up of non-performing loans of banks and delay in debt resolution.
  • IBC applies to companies, partnerships and individuals, and provides for a time-bound process to resolve insolvency.
  • Timeframe under the code
    • Companies have to complete the entire insolvency exercise within 180 days under IBC.
    • For smaller companies, the whole exercise of insolvency must be completed in 90 days.
    • If debt resolution doesn't happen, then the company goes for liquidation.
  • The Insolvency and Bankruptcy Board of India has been appointed as a regulator and it can oversee these proceedings.
  • Proceedings of the resolution process will be adjudicated by National Companies Law Tribunal (NCLT) for companies, and Debt Recovery Tribunals for Individuals.

Challenges associated with IBC

  • Time limit: The proportions of NCLT benches to the high range of cases are unbalanced and time under code is troublesome, and this gets even more difficult when one company has many creditors.
  • Lack of sufficient infrastructure: The lack of sufficient NCLT benches has resulted in increasing pendency, thereby defeating the purpose of the code.
  • Frequent amendments: The difficulty in interpreting the code, has led to frequent amendments and judgements by the court, thereby hamperthe ing smooth flow of processes.

Proposed changes

  • To strengthen the functioning of the IBC, changes to the Code are being considered in relation to the admission of corporate insolvency resolution process (CIRP) applications, streamlining the insolvency resolution process, recasting the liquidation process, and the role of service providers under the Code.
  • the corporate affairs ministry has suggested developing a state-of-the-art electronic platform that can handle several processes under the Code with minimum human interface.
  • Redesigning the Fast-Track Corporate Insolvency Resolution Process (FIRP) to allow financial creditors to drive the insolvency resolution process outside of the judicial process while retaining some involvement of the Adjudicating Authority (AA) to improve the legal certainty of the final outcome.
  • Other proposals include:
    • Extend pre-packaged insolvency processes to larger companies
    • Tighten recovery from personal guarantors and make failures to comply with the bankruptcy code civil violations rather than criminal offences.

Source:

Govt proposes sweeping overhaul to its bankruptcy law

 

Image source

https://www.ijedr.org/papers/IJEDR1903007.pdf

 

https://www.legalindia.com/wp-content/uploads/2018/10/Image-of-Insolvency-and-Bankruptcy-Code-2016.png

 

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