Insolvency and Bankruptcy
Insolvency and bankruptcy in India had become one of the biggest challenges for the Indian economy in the last decade especially since the insolvency law in India was ancient and archaic. Recognizing that reforms in the insolvency and bankruptcy regime are critical for improving the business environment and alleviating distressed credit markets, the Government of India introduced the Insolvency and Bankruptcy Code Bill in November 2015, drafted by a specially constituted ‘Bankruptcy Law Reforms Committee’ (BLRC) under the Ministry of Finance. After a public consultation process and recommendations from a joint committee of Parliament, both houses of Parliament passed the Insolvency and Bankruptcy Code, 2016 (“Code/IBC”). The revised insolvency and bankruptcy law offers a uniform, comprehensive insolvency legislation encompassing all companies, partnerships and individuals (other than financial firms). The Government of India is proposing a separate framework for bankruptcy resolution in failing banks and financial sector entities.
- The Code proposes a paradigm shift from the existing ‘Debtor in possession’ to a ‘Creditor in control’ regime.
- The Code aims to resolve insolvencies in a strict time-bound manner, where the moratorium period is of 180 days (extendable up to 270 days) for the Company, and, the Insolvency Professional shall take over the management of the Company.
- The Code clearly defines the ‘order of priority’ or the waterfall mechanism. Government dues shall now be junior to most others.
- Antecedent transactions can be investigated and in case of any illegal diversion of assets, personal contribution can be ordered by tribunal.
- The Code has an overriding effect on all other laws relating to insolvency and bankruptcy.
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