Indian Economy and Government current

1. BANKRUPTCY CODE

2. BACKGROUND
Doing Business Report,2016, India is
at 136 out of 189 countries.
Secured Creditor in India recovers
25.7 % against 72.3 % of OECD
Average.
Whole process takes 4.7 years in India
(OECD 1.7 Years )
** compared to 0.8 years in Singapore
and 1 year in London.

4. BACKGROUND
 Kingfisher, once India's second-biggest
airline, was grounded in 2012 with debts of
over $1.5 billion.
 But it was not until February 2015that its
long-suffering creditor banks got their hands
on its former headquarters in Mumbai.
 Nearly 60,000 bankruptcy cases languish in
India's overburdened courts.

5. ISSUES
 some laws forbid creditors from taking any legal action
against the defaulter until a restructuring plan is in place;
that can take several years.
 In the meantime, owners of sick companies retain day-
to-day management control and often prolong court
proceedings as nervy creditors watch the value of their
assets dwindle
 defaulters to start another business under their relative’s
name by siphoning off business from the old one.
Insolvency protection for debtors, too, is similarly flawed.
Ailing companies have to wait until their net worth is
reduced by half before they qualify as “sick”
 Other Labor and Land laws conflict with the selling of
Land or laying off workers.

6. ISSUES
 To be declared sick, and qualify for court
protection, firms have to apply to the Board for
Industrial and Financial Reconstruction, a
government agency, which will not act until the firm
has frittered away half of its net worth in losses.

7. PROVISIONS OF THE ACT
 time-bound processes for insolvency resolution of
companies and individuals. (within 180 days).
 The assets of the borrowers may be sold to repay
creditors, if insolvency not resolved.
 Would be conducted by licensed insolvency
professionals (IPs). These IPs will be members of
insolvency professional agencies (IPAs). IPAs will
also furnish performance bonds equal to the assets
of a company under insolvency resolution.
 Information utilities (IUs) will be established to
collect, collate and disseminate financial
information to facilitate insolvency resolution.

8.  The National Company Law Tribunal (NCLT) will
adjudicate insolvency resolution for companies.
 The Debt Recovery Tribunal (DRT) will adjudicate
insolvency resolution for individuals.
 The Insolvency and Bankruptcy Board of India will
be set up to regulate functioning of IPs, IPAs and
IUs.
 The Board will consist of representatives of
Reserve Bank of India, and the Ministries of
Finance, Corporate Affairs and Law.

9. i) insolvency resolution costs,
including the remuneration to the
insolvency professional,
ii) secured creditors, whose loans are
backed by collateral, dues to
workers, other employees,
iii) unsecured creditors,
iv) dues to government, v) priority
shareholders and vi) equity
shareholders.

10. POSSIBLE IMPACTS
Banks NPAs would be reduced.
Specially PSBs.
Ease of Doing Business => Investment
Improve investor confidence and can
deepen the corporate bond market.
New Start Ups => If Succeed- Party, If
Fail => Bankruptcy

11.  One, when a loan default occurs, and either the
borrower or the lender approaches the NCLT or
DRT for initiating the resolution process.
 Two, the creditors appoint an interim Insolvency
Professional (IP) to take control of the debtor’s
assets and company’s operations, collect financial
information of the debtor from information utilities,
and constitute the creditors’ committee.
 Three, the committee has to then take decisions
regarding insolvency resolution by a 75% majority.

12.  Four, once a resolution is passed, the committee
has to decide on the restructuring process that
could either be a revised repayment plan for the
company, or liquidation of the assets of the
company. If no decision is made during the
resolution process, the debtor’s assets will be
liquidated to repay the debt.
 Five, the resolution plan will be sent to the tribunal
for final approval, and implemented once approved

13. THANK YOU 