Why test for bankruptcy law is a larger test for India
India’s new bankruptcy law (Insolvency and Bankruptcy Code) will face its first test later this month when the resolution plan for Kolkata-based Nicco Industries is adjudicated.
The adjudication process will help determine whether the sick company can be restructured or shut down, within 180 days of the case being registered.
Of all the applications that have been filled for resolution, more than 100 have been admitted by the arbiter, the National Company Law Tribunal (NCLT).
The new process has witnessed significant attraction as the existing processes which include corporate debt restructuring, have failed to address the issue of bad debt.
Essential Idea of the new law:
- The essential idea is that when a firm defaults on its debt, control shifts from the shareholders / promoters to a Committee of Creditors
- They will have 180 days to evaluate proposals received from various players about resuscitating the company or taking it into liquidation
What the new law aims to achieve:
- Improvement in our bankruptcy proceedings will contribute towards determining India’s ranking in the Ease of doing business index
- The law also aims to promote entrepreneurship, ensure availability of credit and balance the interests of all stakeholders. This will be achieved by consolidating and amending the laws related to reorganization and insolvency resolution
- Currently the legal and institutional machinery for dealing with default of debt is not as per global standards. The new law aims to bring it at par with global standards as the existing provisions have failed to achieve the desired outcomes
- Time bound resolution will have save maximum value of the underlying asset
Four pillars of institutional infrastructure as envisioned in Insolvency and Bankruptcy Code:
- The first pillar is a class of regulated persons, the Insolvency Professionals. They would be regulated by Insolvency Professional Agencies
- The second pillar is Information Utilities.
- The third pillar of institutional infrastructure is adjudication. The NCLT will be the forum where firm insolvency will be heard and DRTs will be the forum where individual insolvencies will be heard.
- The fourth pillar of institutional infrastructure is Insolvency and Bankruptcy Board. The board will have regulatory over-sight over the Insolvency Professional, Insolvency Professional agencies and information utilities