KEY FEATURES OF THE INSOLVENCY CODE, 2016
By Amrisha Tripathi August 31, 2016
Author: Swechha Malik, Lawfarm Intern
Amid a surge in bad loans, the Lok Sabha on May6, 2016 approved a bill to overhaul a century old laws that regulate insolvency. Rajya Sabha passed the bill on May 11, 2016. The proposed bankruptcy and insolvency code aims to slash the time it takes to wind up a company or recover dues from a defaulter.
The bill proposes an insolvency regulator for an oversight. It lays down a transition provision during which the central government will exercise all the powers of the regulator till the time one is set up. The existing debt recovery tribunals to be adjudicating authority for individuals and unlimited liability partnership firms. The National Company law Tribunal would be adjudicating authority for companies and limited liability entities.
Information utilities will be set up to collect and collate financial information from listed companies and their creditors.
A time bound process to resolve insolvency has been proposed in the bill upon occurrence of a default, creditors have control over debtor’s assets and decisions to solve insolvency should be taken within a 180 day period by the creditors. To ensure uninterrupted resolution process, the bill also provides immunity for debtors from the claims and court cases of creditors during this time period.
The bill also consolidates provisions of the current legislative framework, to form a common forum of debtors and creditors of all classes to resolve insolvency
The bill creates various institutions to facilitate a time- bound resolution process. These include licensed professionals who administer the insolvency resolution process, and utilities that will act as depositories of financial information of the debtor.
The new law virtually empowers creditors to decide whether a defaulter is declared insolvent or not, though legally their decision could still be challenged in the higher courts.
The bill provides for setting up an Insolvency and Bankruptcy Board of India to regulate professionals, agencies and information utilities engaged in resolution of insolvencies of companies. As per the code, in case of insolvency, interest of workers should be fully protected and they should be given dues for 24 months.
The law enables banks to push for resolution/recovery of the money from a troubled company within a period of 180 days with a grace period of another 90 days if majority (75%) of creditors agrees. If the recovery doesn’t happen even then, the company will be liquidated automatically. Presently, recovering money from a defaulted corporate borrower is a nightmare for bankers since it takes years for the Debt Recovery Tribunals to finish the litigation. Promoters typically drag banks to various other courts to delay their payments. By the time, the whole process gets over, there will be nothing left for banks to recover. The underlying value of assets would have eroded sharply by then. The new law promises a change to this scenario by consolidating and amending the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner.
 Section 12, Insolvency and Bankruptcy Code, 2016
 Section 69, Insolvency and Bankruptcy Code, 2016
 Section 140, Insolvency and Bankruptcy Code, 2016
 Preamble to the Insolvency and Bankruptcy Code, 2016.
 Section 53, Insolvency and Bankruptcy Code, 2016.
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