Bankruptcy Law panel recommends unified insolvency code for Cos, LLPs, firms and individuals

The Finance Ministry has put up the Insolvency and Bankruptcy Bill, 2015 (‘the draft bill’) on its website for public comments till November 19 2015, after which the bill will be placed before Parliament in the winter session for approval. The draft bill contains provisions to speed up the process of revival of financially distressed companies and limited liability entities. The draft legislation is based on the report of a high-level panel headed by former law secretary T.K. Viswanathan.

The Draft Bill aims to consolidate the existing laws relating to insolvency of companies, limited liability entities (including limited liability partnerships and other entities with limited liability), unlimited liability partnerships and individuals which are presently scattered in a number of legislations, into a single legislation.

Major recommendations of Bankruptcy panel:

1.Fast track insolvency resolution: The draft Bill provides for a fast track insolvency resolution process for certain categories of entities wherein the insolvency resolution process has to be completed within a period of 90 days from the trigger date

2.Formation of Insolvency Regulator: It proposes creation of an insolvency regulator and setting a time limit of 180 days (which can be 90 days in special cases) to deal with insolvency resolution cases.

3. Insolvency Professionals: The draft Bill proposes to regulate insolvency professionals and insolvency professional agencies. Under Regulator’s oversight, these agencies will develop professional standards, codes of ethics and exercise a disciplinary role over errant members leading to the development of a competitive industry for insolvency professionals

4.  Insolvency Information Utilities: The draft Bill proposes for information utilities which would collect, collate, authenticate and disseminate financial information from listed companies and financial and operational creditors of companies. An individual insolvency database is also proposed to be set up with the goal of providing information on insolvency status of individuals

5.   Bankruptcy and Insolvency Processes for Companies and Limited Liability Entities: The draft Bill prescribes a swift process and timeline of 180 days for dealing with applications for insolvency resolution. This can be extended for 90 days by the Adjudicating Authority only in exceptional cases. If 75 % of the creditors approve the plan, the insolvency resolution process can kick off. If not, the adjudicating authority can order liquidation of the company.

6.   Bankruptcy and Insolvency Processes for Individuals and Unlimited Liability Partnerships: The draft Bill also proposes an insolvency regime for individuals and unlimited liability partnerships. As a precursor to a bankruptcy process, there can be two processes that are followed. In the fresh-start process, individuals with annual gross income of less than Rs.60,000 and aggregate asset value of less than Rs.20,000 shall be eligible to make a fresh start through a specified process. In the insolvency resolution process, creditors and the debtor will engage in negotiations to arrive at an agreeable repayment plan, supervised by a resolution professional.