The Re-Beginnan | Vol.2 | Issue 27
Latest Amendment in Indian Insolvency & Bankruptcy Code — Along with a Brief History
What's the deal?
Amendments have been made in the regulations for liquidation under the Insolvency and Bankruptcy Code (IBC) by the Insolvency and Bankruptcy Board of India (IBBI). These amendments are made to facilitate the liquidation of assets of companies who’ve filed for insolvency & bankruptcy.
Let’s Understand Everything Step by Step
What is Insolvency?
It is the state of a company when it is unable to pay back its debts upon maturity. Companies in such a state are said to be insolvent.
What is Bankruptcy?
It is a company’s/court’s legal declaration of the company’s inability to pay off debt.
Insolvency & Bankruptcy Code; A Brief History
It applies to companies and individuals and was enacted in 2016.
- Insolvency resolution in India took about 4.3 years on an average till 2015.
- This code was introduced to streamline and speedup the resolution process of failed businesses.
- The code formulates a common forum for debtors and creditors of all classes to resolve insolvency by consolidating the provisions of the previous legislative framework.
- The code specifies that the resolution process of a stressed company should be completed in a maximum of 270 days.
- Institutions that facilitate the resolution of insolvency:
a. Insolvency Professionals
b. Insolvency Professional Agencies
c. Information Utilities
d. Adjudicating Authorities
e. Insolvency and Bankruptcy Board
Even after specifying in the code that the resolution process must be completed in a maximum of 270 days, yet the resolution process would take much longer. Hence, amendments were introduced to expedite the resolution process.
What are the Amendments?
- The first amendment allows the liquidator to assign or transfer a “not realised asset” to any person in consultation with the stakeholders.
- The second amendment allows certain creditors to exit the liquidation process by assigning or transferring their debt to other creditors if they don’t want to wait for the liquidation to be over
Closing Note…
Though IBBI has introduced these amendments, they will have to be tested in the court of law or an appropriate forum. The definition of “not readily realisable asset” is contentious.
Also, the question arises whether the IBBI has the powers to make these amendments? Or these amendments should have been passed in the parliament? Only time will tell if these amendments will expedite the resolution process or create more legal challenges.
