Why was there a need for enforcing Indian Bankruptcy code in the year 2016? br>
Before 2015, the insolvency resolution in India used to take on an average of 4.3 years. It was much higher than other countries like the UK or the USA, 1 year and 1.5 years respectively.br>
The reason for the delay was due to the time taken by the legal processes and confusion because of the lack of clarity about the bankruptcy framework for npa account settlement.
Salient features of the Indian Bankruptcy code, 2016
The current code is applicable to individuals and companies both. It aims to provide a time-bound process to resolve insolvency cases.
- As per the new code, creditors gain control over the assets of debtors in case of default in repayment. It is mandatory to decide about resolving insolvency within a six months period.
- The code offers immunity to debtors from resolution claims of creditors during this period so that uninterrupted resolution can be facilitated.
- The code forms a common forum for creditors and debtors by consolidating the provisions of the current code. It is to ensure faster resolution of insolvency for the resolution of npa in india.
Who can facilitate insolvency resolution?
- Insolvency professionals
- Insolvency professional agencies
- Information utilities
- Adjudicating authorities
- Insolvency and bankruptcy board
Procedure to resolve insolvency in the Bankruptcy Code
Initiation
The creditor or debtor may initiate the resolution process. It is administered by the insolvency professional.
The process lasts for 180 days, and it is prohibited to take any legal action against the debtor during the period.
Decision
The insolvency professional forms a committee of financial creditors that will make a decision about the future of the outstanding debt.
Liquidation
If the debtor goes into liquidation, the insolvency professional administers the process of liquidation.
The order of precedence is as follows:
- Insolvency resolution cost
- Seured creditors
- Unsecured creditors
- Dues to government
- Priority shareholders
- Equity shareholders