Lok Sabha passes Insolvency and Bankruptcy Code, 2015
India is a capital starved country and therefore it is essential that capital isn’t wasted away on weak and unviable businesses.
It takes more than 4 years to resolve insolvency cases in India, as against 1.5 years in developed countries so in India it is very difficult to solve insolvency and similarly difficult to exit from a business.
In order to provide a quick solution of insolvency cases the Lok Sabh has unanimously passed Insolvency and Bankruptcy Code, 2015 - a new law aimed at speedy winding up of companies, lower non-performing assets and redeployment of capital for productive uses.
The Lok Sabha passed the code with all the amendments proposed by the 20 members joint parliamentary committee being accepted by the government. As it is a Money Bill, the Rajya Sabha has limited powers towards this bill.
What is Bankruptcy ?
Bankruptcy is a legal status usually imposed by a Court, on a firm or individual unable to meet debt obligations. India’s new Bankruptcy Bill attempts to create a formal insolvency resolution process (IRP) for businesses, either by coming up with a viable survival mechanism or by ensuring their speedy liquidation.
What is Insolvency ?
Insolvency is the state of being unable to pay the money owed, by a person or company, on time or near future and the value of assets held by them are less than liability.For individuals, it is known as bankruptcy and for corporate it is called corporate insolvency.
Difference between insolvency & bankruptcy
Insolvency is the situation when the company or the person is unable to pay the the debt on time while bankruptcy is the legal declaration of insolvency. In this case the debtor files an application with the court to declare himself insolvent. Therefore insolvency is a financial situation while bankruptcy is a legal condition.
Highlights of the Code :
- The Code creates time-bound processes for insolvency resolution of companies and individuals.These processes will be completed within 180 days. If insolvency cannot be resolved, the assets of the borrowers may be sold to repay creditors.
- The resolution processes will be conducted by licensed insolvency professionals (IPs). These IPs will be members of insolvency professional agencies (IPAs). IPAs will also furnish performance bonds equal to the assets of a company under insolvency resolution.
- Information utilities (IUs) will be established to collect, collate and disseminate financial information to facilitate insolvency resolution.
- The National Company Law Tribunal (NCLT) will adjudicate insolvency resolution for companies. The Debt Recovery Tribunal (DRT) will adjudicate insolvency resolution for individuals.
- The Insolvency and Bankruptcy Board of India will be set up to regulate functioning of IPs, IPAs and IUs.
Comment : The easy exit option and quick solution of insolvency cases will give easy exit option the entrepreneurs and also viable choice to restart. It will also boost FDI inflow and thus strengthen the stability of the economy.