What India’s New Bankruptcy Law Means
What Is India’s New Bankruptcy Code?
India currently has multiple laws to deal with insolvency, which leads to significant delays in winding up a company. The Bankruptcy Code will consolidate the existing framework and create a new institutional structure.
The new law will also likely create a new class of insolvency professionals who will help sick companies and banks with a smooth takeover of the insolvent company and manage the liquidation process.
The bill also proposes the setting up of a new entity, the Insolvency and Bankruptcy Board of India, which will regulate insolvency professionals and information companies — those which will store all the credit information of corporates.
The Bankruptcy Code proposes two authorities to deal with insolvency. The National Company Law Tribunal will adjudicate cases for companies and limited liability partnerships, while the Debt Recovery Tribunal will do the same for individual and partnership firms.
How Will a Company Be Liquidated?
An insolvency resolution plan has to be approved by 75% of voting-share creditors. Once the plan is approved, it would also require the sanction of the adjudicating authority.
During the insolvency resolution period, the management of the debtor is placed in the hands of an resolution professional.
The code proposes to protect the workers in case of insolvency, paying their salaries for up to 24 months will get first priority during the liquidation of assets.
“The code comes as a relief to workers and employees who are left unpaid by defaulting companies,” said Varun Gupta, partner at KPMG in India.
In the event of an insolvent debtor having assets abroad, India’s federal government can enter into an agreement with an overseas country to ensure enforcement of the law.
How Much Time Will the Law Save?
Currently, it takes an average of 4.3 years to resolve insolvency in India and the recovery rate of debt is very low compared with other countries, according to a report from Nomura. India also ranks 136 in the World Bank’s resolving insolvency ranking. This is below China, which ranks 55 and where it takes 1.7 years to resolve insolvency.
The new law introduces a time limit on the bankruptcy process. In the case of a default, the time-limit is 180 days, within which the resolution has to be completed. This can be extended by another 90 days by the adjudicator, depending on the process.
Analysts say the new time frame will help India improve its World Bank insolvency ranking.
How Useful is the New Law?
The new bankruptcy law isn’t a “magic wand,” says brokerage Religare Capital Markets. It sees the benefits flowing in after 3-5 years from now.
Analysts say the main challenge will be creating a large pool of insolvency professionals who will help with the fast implementation of the law. The new regulators will also need to draft procedural rules for insolvency professionals and information utilities among others.
Modi didn’t go after Sonia or Chidu or the Congress on their corruption and stealing of national wealth. He has no clue about how the economy will change. Today globalism has reversed to anti-globalism. This has shrunk the market for which he was preparing. BRICS bank was stillborn. Indian workers and even those intelligentia whose labor is sold in foreign markets are going to return in great numbers adding to the pressure of unemployment while the foreign exchangr they were repatriating will come to zero. Even when Trump is ready to fight Islamic Terrorism Modi is lukewarm to his proposal. He follows the same policies of appeasement to Muslims and Christians and encouraging and prolierating casteism that the Congress govts have followed before. Today the UPA & the Congress are literally dead. So in 2019 who will be his enemy? What will be his election slogan? Not the corruption that Swamy fought vehemently and which he milked to the last drop in 2014 election and then backstabbed him. If he employed ‘India Shining’ it will once again be disastrous. The Kashmiri Pandits were again pushed into their tents. Sundanda case is hidden under the carpet because it may bring out that Sonia killed her and AJ had a share in it. He managed to have a puppet CJI so the Mandir Issue will be postponed. Even the Disproportionate Income of JJ wont be heard even after her death because he depends of the AIADMK votes in parliament so the crooks and free.
Modi is no Napoleon but a cunning coward. He is a narcissist who is a wolf in sheep’s clothe. His demonetization is to save his rich friends who defaulted their bank loans to the tune of lacs of crores. He wont publish their names. He wont confirm that more money than was printed was returned. He wants people to keep their money in the bank and he will charge them when they withdraw it and impose limit on how much they can withdraw their own money. He has built a following of bhakts who would defend him but the fact is his majority was coming out of only 31% of the electorate and if 3% stayed home in the next election his MPs score will drop to less than 50. It is his own making. He creates his own enemies and he cannot defend his nation even though he makes a posture. I know what is going on in India. India cannot survive if China-Pak ties are not broken and Modi wont do it. He is afraid of taking on the Muslims while they are growing by leaps and bounds and are becoming one of the greatest menace as we see in Kerala and WB. He is not even prepared to acknowledge they are a problem. So these things constitute whether he loses his election or whether he loses his life like Indira and Rajiv. Time will tell.