There was a big round of applause and cheerful welcome to the insolvency and bankruptcy code passed by the parliament last year. Yes, it was seen as an effective tool to overhaul the existing system that deals with cases of an individual, corporate, partnership firm or big corporate house facing the problem of bankruptcy.
The recent code brings several useful and effective reforms that focus on resolving the creditor driven insolvency by paying attention to the right things.
As of now, there are several laws that deal with the cases of financial failure. Some of the clauses and sub-clauses clash with each other while resolving the insolvency cases of individuals and companies.
The current structure doesn’t help lenders in the effective and timely recovery of defaulted assets. It puts a tremendous load on the credit system as a whole. The existing setup doesn’t permit restructuring of the default assets either.
Hence, there was a need felt by financial experts to improve the insolvency and bankruptcy regime completely. It will not only improve the business environment but remove the distress in the credit markets.
It was the triggering point of introducing an improved and efficient version of bankruptcy and insolvency act.
It is still evolving
The newly implemented code takes care of liquidation process and streamlines the operational hassles. There have been several interpretations of the code and still lawyers and legal experts and in the process of deriving the inherent meaning of it. The aim is to make the interpretation comprehensive.
Some of the so-called ‘conflicting interpretations’ that may lead to a dispute have been identified by experts. Work is going on to correct the same. The fundamental objective is to make it simple to a bankruptcy lawyer while dealing with the disputes.
As there is further clarity comes about the several clauses and terms, it becomes more and more simple and clear.
What are the provisions?
The following conditions should be fulfilled:
- None of the parties received repayment of the operational debt
- There is no notice from the corporate debtor about existence of dispute
- The date of the pendency of suite (or arbitration proceeding) is before the invoice or notice.
The code empowers the tribunal to reject or accept the insolvency application raised by the creditor based on certain criteria.