New insolvency laws

Aiming at easing out business processes in India

Business & Politics

News - Biz@India

May 13, 2016

/ By / New Delhi



Along with changes in India’s debt recovery and enforcement laws, the new laws will be critical in solving India’s bad debt problem too

Along with changes in India’s debt recovery and enforcement laws, the new laws will be critical in solving India’s bad debt problem too

How to make it easier to do business in India, still sometimes complicated for local and foreign players? The upper house of Parliament of India aimed at addressing part of this issue by passing the insolvency and bankruptcy code 2016, on May 11.

Business default is still a huge problem in India. As the Council of States passed the insolvency and bankruptcy code 2016, the country will have new insolvency laws, which is supposed to enable faster turnaround of businesses, maintain a record of serial defaulters and make sure timely settlement of insolvency.

The goals are ambitious. Along with changes in India’s debt recovery and enforcement laws, the new laws will be critical in solving India’s bad debt problem too.

The new rules are also critical for any partner involved, including foreign ones, as they will replace current insolvency laws and cover individuals, companies, limited liability partnerships and partnership firms. It will also help creditors to recover loans faster and easier.

There is a lot of ground to cover. Currently, India stands at number 130 in World Bank’s ease of doing business index and the amendments in the bill are expected help move the country up from its current rank.

Aiming to reduce insolvency

On the scale of solving bankruptcy itself, India is ranked at 136 among 189 countries. According to the World Bank, it takes more than four years to resolve a case of bankruptcy in India and the new bill seeks to reduce this time to less than a year.

The new bill suggests the involvement of insolvency professionals who will specialise in helping sick companies. It also provides use of information utilities that will analyse records about debtors to prevent serial defaulters from misusing the system.

The bill also aims at reinforcing the control process. It seeks to set up the Insolvency and Bankruptcy Board of India to act as a regulator of these utilities and professionals. It proposes to use the existing infrastructure of National Company Law tribunals and debt recovery tribunals to address corporate insolvency and individual insolvency, respectively.

Protecting workers’ interests

There are also crucial human aspects at stake: the workforce protection is also needed. Considering the interest of the workers, the bill contains provisions to make sure that the money due to workers and employees from provident fund, pension fund and gratuity fund should not be included in the estate of the bankrupt company or individual.

Also, the money and compensation aspect is tackled. Salaries for workers up to 24 months will get first priority in case of liquidation of assets of a company.

On the political level, the new laws hold provisions for the government as they state to disqualify anyone declared bankrupt from holding public office. It is to ensure that politicians and government officials cannot hold any public office if declared bankrupt. As they say, as far as business facilitation at large is concerned, it is always a work in progress.

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