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The proposed Bill will consist of measures to improve domestic insolvency regime as well as provisions to introduce a cross-border insolvency regime. (Mint)

The government is set to go for an overhaul of the Insolvency and Bankruptcy Code (IBC) for quicker rescue of distressed companies and to fix the weaknesses seen in bankruptcy proceedings including the functioning of professionals hired by lenders to run defaulter companies.

The ministry of corporate affairs has consulted judges, lenders, bankruptcy resolution professionals and various institutions on improving the outcome of bankruptcy proceedings and a set of formal proposals is awaited from them. Based on their suggestions and further consultation within the government, a Bill to overhaul the Code will be tabled in Parliament, which is likely in the budget session of Parliament, said a person familiar with the discussions in government.

The proposed Bill will consist of measures to improve domestic insolvency regime as well as provisions to introduce a cross-border insolvency regime. At the ministry’s consultation with stakeholders, the role of insolvency resolution professionals was examined in great detail, said the person.

A key concern for policy makers is that these professionals who are hired for running the company as a stop gap arrangement and to perform certain bankruptcy resolution related functions are not industry experts and hence they remaining at the helm of the company for a longer period may not add any value to the operational performance of the business. Hence delays in bankruptcy resolution also affect the operational performance of the business.

“Reducing the time taken in bankruptcy resolution will make the process effective and improve the yield," said the person quoted above, who spoke on condition of anonymity.

The idea of an overhaul of the code is to address all its requirements in one go and give it a fresh lease of life in the light of the experience in its operation, rather than fixing individual areas with limited amendments. The government is keen to make a significant improvement in the pace of rescuing companies in distress. Bankruptcy rule maker Insolvency and Bankruptcy Board of India (IBBI) has been modifying rules and guidelines in several areas. They include seps to make it easier for tribunals to quickly establish existence of a payment default, reversal of ‘voidable’ transactions of the defaulting management, bringing more transparency and fairness in the functioning of the resolution professional, giving more flexibility in the sale of assets, making the bidding process more efficient and allowing entities to function as resolution professionals.

An email sent to the spokesperson for the corporate affairs ministry on Thursday seeking comments for the story remained unanswered at the time of publishing.

So far 5,893 cases have been admitted in the National Company Law Tribunal for bankruptcy resolution, of which, 3,946 cases are closed and 1,900 cases are pending, as per data available from IBBI. According to industry experts, many cases take a long time to get admitted in tribunals.

As per IBBI estimates, till September, 23,417 applications for initiation of bankruptcy resolution, having underlying default of 7.3 trillion were resolved before their admission, indicating that the bankruptcy code has led to a behavioural change among corporate debtors.

ABOUT THE AUTHOR

Gireesh Chandra Prasad

Gireesh has over 22 years of experience in business journalism covering diverse aspects of the economy, including finance, taxation, energy, aviation, corporate and bankruptcy laws, accounting and auditing.
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