What is New Insolvency & Bankruptcy Bill ?

The core law that is guides the rescue and rehabilitation procedure in India is the Sick Industrial Companies (Special Provisions) Act of 1985 (SICA). Under SICA, a specialised Board of Industrial and Financial Reconstruction (BIFR) assesses the viability of the industrial company. Once it has been assessed to be unviable, BIFR refers the company to the High Court for liquidation. The problem lies in the fact that the spirit of this law is focussed on the revival of industries via the BIFR often irrespective of the viability of the unit thereby resulting in the continuation of operations of an unviable business. This system creates two sets of problems namely,
With the management of the company being allowed to continue even when the company has been declared sick, malpractices by promoters continue thereby leaving very little value on the table for the creditors at the end of the process.

The fragmented nature of the bankruptcy framework coupled with delays in decisions undermines the credibility of debt contracts. According to the report of the Bankruptcy Law Reforms Committee, the average time to resolve insolvency is 4 years in India v/s 0.8 years in Singapore and 1 year in UK.

The proposed Insolvency and Bankruptcy Bill provides a stark improvement to the current process prescribed under SICA in four clear ways as indicated below.
bankruptcy-bill-india

The experts further highlighted that the success of the NBC mandated process will depend upon not only: (1) the willingness of the creditor to take tough decisions and take haircuts but also (2) the saleability of the assets under question.

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