Insolvency and Bankruptcy Code Bill

The Insolvency and Bankruptcy Code 2015, which seeks to provide an easy exit option for insolvent and sick companies, was today referred to a 30-member joint committee of the Members of Parliament for further scrutiny. The bill was introduced in the Lok Sabha by Finance Minister Arun Jaitley on December 21. Highlights are as follows:

The Bill consolidates into a single law a host of legislations that deal with the subject. It aims to speedily adjudicate such cases for higher recovery of debt and money; allow operational creditors like employees to also call for insolvency resolution; propose Insolvency Regulator to exercise regulatory oversight over insolvency professionals, insolvency professional agencies and informational utilities.

Two separate Insolvency Adjudicators are mooted – one with jurisdiction over companies and the other over insolvency and bankruptcy resolution of individuals. The Bill proposes to regulate insolvency professionals and insolvency professional agencies, under regulator's oversight. It has mooted a fast-tracking resolution of insolvency cases and improve recoveries of amount lent to companies within a timeline of 180 days, extendable by another 90 days;

Insolvency resolution process for individuals where the creditors and the debtor will engage in negotiations to arrive at an agreeable repayment plan of debts. There shall be "Fresh Start" process for indigent individuals with income and assets lesser than specified thresholds. Insolvency information utilities would collate, authenticate and disseminate financial information from listed companies and creditors of companies.

The Debt Recovery Tribunal (DRT) shall be the Adjudicating Authority with jurisdiction over individuals and unlimited liability partnership firms. Appeals from the order of DRT shall lie to the Debt Recovery Appellate Tribunal (DRAT). The National Company Law Tribunal (NCLT) shall be the Adjudicating Authority with jurisdiction over companies, limited liability entities. Appeals from the order of NCLT shall lie to the National Company Law Appellate Tribunal (NCLAT). NCLAT shall be the appellate authority to hear appeals arising out of the orders passed by the Regulator in respect of insolvency professionals or information utilities.

The draft Bill proposes to regulate insolvency professionals and insolvency professional agencies. Under Regulator’s oversight, these agencies will develop professional standards, codes of ethics and exercise a disciplinary role over errant members leading to the development of a competitive industry for insolvency professionals. An individual insolvency database is also proposed to be set up with the goal of providing information on insolvency status of individuals. Revival and re-organisation of regime applicable to financially distressed companies and limited liability entities will be taken up.