On Tuesday the government issued fresh draft guidelines that will help put India’s bankruptcy code into action. The government has invited comments from the public on these new rules, before they are finalised. Here’s all that you wanted to know about the new draft rules.
What is the bankruptcy code and when was it notified?
The Insolvency and Bankruptcy Code 2016 (simply called the ‘bankruptcy code’) sets time bound procedures for resolution of insolvency cases related both to individuals and companies. It seeks to implement these processes within a period of 180 days. The bankruptcy code was unveiled in May this year.
What exactly are the new guidelines all about?
These are essentially three sets of draft rules that specify how the process of resolution of insolvency for corporates and their liquidation are to be carried out. These rules also specify how an application to the adjudicating authority is to be made. The new rules outline the duties of and powers of professionals who will conduct the process of resolution. They also mandate a committee of not more than 20 operational creditors that will approve the resolution plan.
The interim resolution professional shall be liable to make a public announcement, within two days of receiving an order from the adjudicating authority admitting an application for initiating a corporate insolvency resolution process. And, within seven days of his appointment, he will appoint two valuers for calculation of the value of liquidation. The resolution professional will have the power to sell the assets of the debtor outside the normal rules, if he is convinced that the value of such assets will diminish fast.
Who will conduct the process of resolution and what will happen if the insolvency cannot be resolved?
Licenced insolvency professionals who will be members of specified agencies will conduct the resolution process. These agencies will be required to furnish bonds equal to the assets of the company or individual under the process of insolvency resolution. If the insolvency cannot be resolved, the assets of the concerned debtors may be sold to pay off creditors.
Which agencies will oversee and adjudicate on insolvency matters?
Insolvency resolution for individuals will be adjudicated upon by the Debt Recovery Tribunal, while the National Company Law Tribunal will do so for companies. Information utilities will be set up to collate and disseminate information on insolvency related matters. The government has also constituted the Bankruptcy Board of India, under the chairmanship of M S Sahoo.
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