INSOLVENCY AND BANKRUPTCY CODE (AMENDMENT BILL), 2021

  • Recently, the Parliamentary Standing Committee on Finance has noted the delays in corporate insolvency under the Insolvency and Bankruptcy Code (IBC), 2016.
  • It has called out the Ministry of Corporate Affairs (MCA) on persistent vacancies in National Company Law Tribunals (NCLTs).
  • Earlier, the government introduced the Insolvency and Bankruptcy Code (Amendment Bill), 2021 in the Lok Sabha which introduces an alternate insolvency resolution process for Micro, Small and Medium Enterprises (MSMEs) called the Pre-packaged Insolvency Resolution Process (PIRP).

Insolvency and Bankruptcy Code

  • It is a reform enacted in 2016. It amalgamates various laws relating to the insolvency resolution of business firms.
  • It lays down clear-cut and faster insolvency proceedings to help creditors, such as banks, recover dues and prevent bad loans, a key drag on the economy.

Important points:

  • The combined strength of the current NCLT benches around the country is currently only 29 members against the total sanctioned strength of 63 members.
  • The committee noted that delays in the admission of insolvency cases by NCLTs and the approval of resolution plans were the key reasons behind the non-adherence of timelines under the IBC.
  • Delays on the part of the NCLT in admitting cases allowed defaulting owners the opportunity to divert funds and transfer assets.
  • A number of high profile cases under the IBC saw multiple decisions being challenged by stakeholders. Many of these appeals are frivolous attempts to slow down insolvency proceedings.
  • Cases in which creditors have evaluated resolution plans submitted after the specified deadline would disincentive bidders from bidding within prescribed timelines and that such plans also contribute to delays and value destruction.

Recommendations:

  • NCLT should be required to admit a defaulting company into insolvency proceedings and hand over control to a resolution professional within 30 days.
  • The MCA, as the nodal ministry, should take greater responsibility to streamline the operational processes in NCLT/National Company Law Appellate Tribunal (NCLAT) while constantly monitoring and analysing the workflow, disposal and outcomes with regard to resolutions, recoveries, time taken, etc.
  • The IBC be amended to provide MSMEs, which are operational creditors under the IBC, with greater protection in the current economic environment.
  • The IBC currently prioritises financial creditors over operational creditors.
  • Financial creditors are those whose relationship with the entity is a pure financial contract, such as a loan or a debt security.
  • Operational creditors are those whose liability from the entity comes from a transaction on operations.

SOURCE: THE HINDU,THE ECONOMIC TIMES,MINT

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