On Wednesday, Rajya Sabha passed the much awaited bankruptcy code and with the signature of Indian president, it will become a law. It will provide speedy resolution of bankrupt businesses. The bill is good news for businesses, banks and also individuals. Given the recent episodes of some of the industrialists go bankrupt and banks doing nothing – this new law would provide banks a tool to better deal with in the cases of bankruptcy. According to Central Bank data, stressed assets rose to 14.5% in 2015 – meaning 10 trillion dollars of loan are struck. RBI has been also tough on banks after the Sahara and Kingfisher episodes.
Previous laws such as Sick Industrial Companies Act, the Recovery of Debt Due to Banks and Financial Institutions Act and some laws started from Colonial period – but the multiplicity of laws and concerned department has complicated the bad debts recovery process.
So how this law is different?
The insolvency cases will be resolved in minimum 180 and maximum 270 days. However, there will be new institutions helping in winding up the insolvency process on time. These would include:
• Insolvency professionals, who will have knowledge of resolution process, taking over the company’s management and managing the liquidation process.
• Insolvency Professional Agencies.
• Information Utilities, which will collect debtor’s data.
• Insolvency and Bankruptcy Board of India, that will lead the institutions mentioned over.