Insolvency and Bankruptcy Code 2016 The Insolvency and Bankruptcy Code is a law associated with bankruptcy of firms which was passed by the parliament on 5th May 2016 The major problems it tries to address are the insolvency and bankruptcy problems with the entities registered in the country At the time this bill was introduced there were overlapping laws addressing to this issue and there weren't any specific law which followed up to see that the interests of the lenders were protected The changes which are brought about in this framework also focus on an insolvency resolution driven by the creditors It covers every entity except for financial institutions This bill was introduced keeping in my mind the need to improve the standing of the credit markets as well as improve the environment in general in which businesses operate It tries to combine all the previous insolvency laws introduced in the country under one umbrella
The Financial Resolution and Deposit Insurance FRDI Bill 2017 This bill was in lines with the Insolvency and Bankruptcy Code which was a bill introduced the previous year but the only difference was that this bill only deals with financial institutions whereas the IBC deals with everything else This bill provides the detailed guidelines to be followed in case of insolvency or bankruptcy of a financial institution within the country This bill covers the scope to protect the interest of these financial entities which lend money It seeks to maintain the well being of such firms during times of financial distress It not only seeks to protect but also discipline these entities during such times This would help to maintain some stability in the economy with regards to the financial standings and at the same time it provides measures to be undertaken during times of financial distress
Through its policies the IBC would help enhance investor confidence by eliminating the confusion created by the complicated framework of judicial actions It has created a single insolvency and bankruptcy framework that formulates an unambiguous and concise procedure that all the stakeholders will follow according to a fixed timeline It helps the lenders by instilling confidence in them about their rights and ways to enforce the same It provides them with the right to control the actions of the borrower during default and maximize the chances and degree of recovery of their funds It in turn aids the borrowers by way of providing genuine businesses with an option for reorganization thus giving them a second chance for survival It has set guidelines in place whereby personal contribution can be sought in case it is found that the asset diversion was done on a fraudulent basis It thus encourages the borrowers to focus their attention on the firm's liquidity by ensuing tight cash flow through forecasting and monitoring to actively serve payments avoid default The IBC thus ensures that there is consistency with regard to what constitutes insolvency the procedure to be followed to resolve insolvency and that to resolve cases of bankruptcy if and when they are detected All major economies across the world have laid down guidelines and laws to deal with the issues of insolvency and bankruptcy The US has established a Bankruptcy Code which consists of three important chapters Chapter 7 involves separate filing of cases in bankruptcy courts and makes the provision for relatively faster liquidation of assets or complete reorganization of the business under consideration by appointing a trustee to oversee the procedure Chapter 11 deals separately with the procedure of reorganization of businesses with the company remaining in operation till certain targets are achieved
This bill is essentially to strengthen the already existing laws addressing the issue of bankruptcy and insolvency of financial institutions in times of financial distress Though this bill was followed by some concern as it was petitioned that this bill allows the banks who are about to be bankrupt to use the money of the depositors with them to save themselves Actions Taken Analysis IBC The IBC helps to distinguish between insolvency and bankruptcy It defines insolvency as the inability of a firm to serve its liabilities in the short run during the course of its normal operation Bankruptcy on the other hand is a long term perspective that deems a company unfit for survival considering all aspects including past performance and future projections The code was set up with the objective of reducing the time for resolution improve the degree of recovery and to promote a higher level of debt financing through a wide range of debt instruments The code was deemed necessary to effectively deal with the NPA situation currently bothering the financial system of the country
Chapter 15 was introduced to deal with cross border insolvency cases In Germany however insolvencies associated with firms and individual are dealt with on a unified forum The court appoints independent insolvency experts to help with the process of asset realization or business reorganization Another case in point is the UK where the situation is analysed by the court once the cases are filed After 12 months of filing if the court finds that the companies can be turned around it appoints independent administrators to deal with the proceedings Otherwise the cases are quickly discharged and a part of the assets of the company authorised for use in paying off its debts Thus the IBC puts India on the path to match itself with global standards and competition endowed by the advent of globalization
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