The Insolvency and Bankruptcy Code proposes two authorities to deal with insolvency
The National Company Law Tribunal will adjudicate cases for companies and limited liability partnerships
- The Debt Recovery Tribunal will do the same for individual and partnership firms.
Benefits to Start-ups
The critical moot point which emerges from the passing of this Code, how it can boost the start-up businesses or entrepreneurs, it can do so as it includes the following:
- The new law will give the banks "more confidence" to lend for long-term projects such as roads, ports and power plants and more specifically the start-up businesses.
- It will cover individuals, companies, limited liability partnerships and partnership firms.
- the code will also balance the interests of all stakeholders by consolidating and amending the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time-bound manner and for maximisation of the value of assets.
- Time-bound disposal As per the new law, when firm defaults on its debt, control shifts from the shareholders/promoters to a Committee of Creditors.The Committee would have 180 days in which to evaluate proposals from various players about resuscitating the company or taking it into liquidation. When decisions are taken in a time-bound manner, there is a greater chance that the firm can be saved as a going concern, and the productive resources of the economy (the labour and the capital) can be put to the best use
- Fast Track disposal The bill prescribes the time limit for procedures at every stage to ensure a result in 180 days. It also has provisions for force majeure and one-time extension of 90 days in certain circumstances. There is also a fast-track option with a 90-day limit and a single extension of 45 days if needed.
- Operational Creditors, Another unique feature of the bill is that it gives the right to the operational creditor to initiate procedure and the right is not limited to big creditors only who want their money back.
- Cross-border insolvency The bankruptcy code has provisions to address cross-border insolvency through bilateral agreements with other countries. It also proposes shorter, aggressive time frames for every step in the insolvency process—right from filing a bankruptcy application to the time available for filing claims and appeals in the debt recovery tribunals, National Company Law Tribunals and courts.
However, the present enactment is just a small step as there are end number of problems associated with the present banking companies like that of a large number of NPA(Non- Performing Assets), the bill is silent with regard to the constitution of Insolvency Utility Boards, whose function is to support the banks in cases of insolvency of firms etc. and last but not the least the banks lack the expertise to deal with the changed provisions, thus it can be analysed that the implementation procedure and the expected consequences will take roughly around five to six years to yield fruits to the economy.
Legistify connects you with the best lawyers in India and top Chartered Accountants in India with simple telephonic conversation or email. Call us at 846-883-3013 or send us an email at firstname.lastname@example.org to get started.