A brief insight into the Indian Insolvency and Bankruptcy Code of 2016
The Indian Insolvency and Bankruptcy Code offer entirely different bankruptcy and commitment regime for India. The code was enforced on 15th December 2016. The terms of the Code that are now in effect include a new corporate bankruptcy resolution, along with identical rules and regulations.
The insolvency and bankruptcy code presents the new face of bankruptcy and resolution administration in India. The passing of the law on 28 May 2016 was the initial step in its debut.
- The Code hints towards a new, improved, insolvency profession and ensures the better utility of reports, which keeps developing over time.
- It is nonetheless, visualized as a new administration.
- Related government departments are working on the objective.
The chief features of the Code are yet to come into authority in the field of its application to the concerned individual.
This article covers the following points accurately:
- The history and operators behind the Code
- A high-level report on the essential elements of the Code and its suitability to corporate borrowers
- The new governing structures designed under the Code.
The government of India’s chief intention in placing the law is best understood by its 2-fold approach towards addressing the issue:
- The insolvency and bankruptcy code is aimed at rectifying India’s poor rating, and to improve the ease of doing business by developing the condition of Indian markets.
- An efficient policy for handling the non-performing borrowers was needed to achieve the desired results.
- The past system was unable to deliver the desired results.
Bankruptcy Law Reform Committee came to existence
- (BLRC) Bankruptcy Law Reform Committee was set to outline the new Law.
- During the process, BLRC explored the opinion of a wide variety of parties, who possessed skills in the areas of restructuring bankruptcy both in the country and outside.
- (HSF) Herbert-Smith-Free Hills were asked by the BLRC to suggest features from a different viewpoint.
- HSF gave input to the BLRC on several, numerous articles and assisted the reasoning process, by stating United Kingdom (UK) event of constructing the new English distress code in the year 1980 and its growth since then.
The features of the code
- The insolvency and bankruptcy code in India is a centralized and complete piece of work, excellent at its commitment to addressing insolvency in regard to corporations, limited accountability partnerships, and individuals as whole concerned.
- The Indian Government through bankruptcy and insolvency act established a separate and new structure for the liquidation process which is related to events with banks and other commercial sector partners.
- The Code constitutes a new structure which consists of adjudicatory groups, a controller, liquidation professionals, and other information services.
The Code presents 2-corporate liquidation process:
- Corporate distress decision process, a fresh time-bound interpretation process; and
- Liquidation, a process that winds-up.
The process of corporate distress resolution:
- The bankruptcy and insolvency laws in India authorize any creditor to utilize the corporate distress analysis process by putting a petition with the associated adjudicatory body related to the experience in payment default.
- Payment default is the only means to analyze the distressing process. There is also a no dividend sheet distress test in the Code.
- The process applies in all the cases related to assets, however, the idea to begin a commitment process alters depending on whether the petition is filed by a commercial creditor, an operational lender or the borrower.
- It is essential, crucial to understanding that there is no tool to record data for liquidation without attempting for a resolution.
- The period of this resolution is rigidly time-bound and confined to 180 days, with the possibility of continuation by an additional 90 days in defined conditions.
The determination period
- During the determination period, the resolution expert (a certified person selected by the adjudicator) directs the activities of the corporate borrower and is liable for managing the business.
- The capabilities of the board of directors are excluded at this time. The management and lenders are expected to act in accordance with the guidance and cooperation of the resolution expert.
- nsolvency and bankruptcy law Istates that an interim applies in the period of resolution. However, secured bankers should not hold back as the lenders’ committee has a wide range of capabilities including the ability to modify security.
- The Code provides a number of necessary goods and assistance to the corporate borrower which shall not be cancelled or suspended by the counterparty during the interim period.
The lender’s committee
- The resolution expert needs to summon bankers, investors, and other related persons to put forth a plan and grant the resolution idea at the meetings of the bankers’ committee.
- The committee comprises of financial creditors and agents of operational lenders, only the economic creditors allowed to vote here.
- The resolution designs are chosen, by the vote of the creditors’ committee. The resolution order is passed, by a 75% majority of the economic creditors. If accepted, by the majority, the resolution is executed.
Lawyers in India state that the passing of the Code was the primary step. Notable structures have been built under the current Code which would require time to understand how it works in reality. India right now doesn’t have an organized body of bankruptcy professionals. There are only a certain number of market associates who are well placed to assist the development.
The rules in the law were made under a short timetable and necessarily needs revision in terms of their application.