Proposed bankruptcy code

Bankruptcy Law Reform is a key priority for improving the ease of doing business. The joint committee on Insolvency and Bankruptcy Code, 2015, has submitted its report, which has been tabled in Parliament for passage before the session ends on May 13. The government had announced that a comprehensive Bankruptcy Code, meeting global standards and providing necessary judicial capacity, would be brought in fiscal 2015-16, but could not do so.

The new Insolvency and Bankruptcy Code will significantly strengthen the hand of banks in resolving a $100 billion bad loan headache. Experts caution, however, that it would take years to train up a new class of insolvency professionals and compile debt records to make the British-style regime effective. Here are some of the highlights of the bankruptcy code:

Unified bankruptcy code
The government plans to repeal an ineffectual, century-old insolvency law and amend 11 laws currently dealing with defaulters. Once fully implemented, the code would seek to speed up debt recoveries and restructurings by setting a deadline of 180 days to decide the fate of a company that defaults.

Application
The code will apply to companies, partnerships, limited liability partnerships, individuals and any other body specified by the government.

Insolvency resolution
For individuals the process could be initiated either by the debtor or the creditors. For companies, the resolution process will have to be completed within 180 days, with an extension of up to 90 days if 75 percent of creditors agree. The process will involve negotiations between the debtor and the creditors to draft a resolution plan. If they agree, the plan could be submitted to the authority. If no agreement is reached, the company would automatically go into liquidation.

The process will be managed by a licenced insolvency professional who will also control the assets of the debtor during the process. The code plans to set up information utilities to collect, collate and disseminate information to facilitate insolvency proceedings.

Insolvency regulator
The insolvency regulator would have representatives from government and the central bank, and oversee and regulate insolvency agencies.

Tribunals
The National Company Law Tribunal would under the code address grievances relating to insolvency, bankruptcy and liquidation of companies. Debt Recovery Tribunals would deal with individual cases. Their decisions could be challenged in appellate tribunals and before the Supreme Court.

Penalties
A debtor could be jailed for up to five years for concealing property or defrauding creditors.