Impact of The Insolvency and Bankruptcy Code,2016

By Aditya Alamuri

With the Insolvency and Bankruptcy Code 2016, Indians can finally go legally broke. The new code will step into the shoes of existing bankruptcy laws and cover individuals, companies, LLP’s, and partnership firms. The code will repair laws including those mentioned in the Companies Act, to become an overall legislation to deal with corporate insolvency. The bill now has renewed teeth to recover loans at a quicker rate.

The Bankruptcy bill has come in at a time when banks are crippled with rising NPA’s. The new code will ensure the creation of a repository of unfaltering defaulters and will result in time bound settlement of solvency.

The bill proposes the following activities to improve the banking sector:

• Creation of a database of debtors to track serial defaulters

• Usage of existing infrastructure of debt recovery and NCL tribunals, to settle individual and corporate insolvency

• Create & train a new class of insolvency professionals who will specialize in assisting sick companies

• Setting up an Insolvency and Bankruptcy Board of India, to step in as a regulator of these information utilities and professionals.

Bankruptcy code also contains provisions to deal with cross-border bungles by way of bilateral agreements with other countries. It urges shorter & aggressive intervals for every step during insolvency process.

The code also ensures that the money due to employees and workers from the 3 funds i.e. (Pension, Gratuity & Provident) is not included in the domain of either the individual or the company. Furthermore, the salaries of employees will get 1st priority up to 24 months in case of liquidation of assets of company – earlier than secured creditors.

The Bill will lead to key transformations which will ensure ease of doing business in India. Currently, as per the World Bank records, it takes more than 4 years to solve a bankruptcy case. The new code seeks to cut it down to less than a year.

The Insolvency and Bankruptcy Code 2016, on the whole, proposes a comprehensive changeover in the current Indian banking system & the way corporates function today. However, it is easier said than done. The implementation of such a vast plan will take time and we will have to wait in order to see the upshot of the same.