The Insolvency and Bankruptcy code 2016 is a historical reform that is expected to bring a major overhaul of India’s weak insolvency regime. India is currently ranked at 136 out of 189 countries in the World Bank’s index for ease of resolving insolvencies. The code offers a way out to the creditors by allowing them to identify and resolve the financial hurdles and failures at an early stage. There is a structured Insolvency Resolution Process (IRP) wherein the creditors assess the viability of the business and opt for liquidation if the IRP fails. Liquidation can be also be initiated by corporate debtors, its shareholders or employees . The code also provides for IRP of Individuals and unlimited partnerships.
The code thus offers an option to arrest the financial failures before it becomes irreversible. If liquidation is the only viable option, there are well defined scenarios for liquidation as well as priority waterfalls for distribution of liquidation proceeds.
A striking feature of the code is the provision of an Institutional Infrastructure for ensuring a structured and time-bound insolvency resolution and liquidation – consisting of the Insolvency Regulator, Insolvency Professionals, Information Utilities, as well as NCLT as the Adjudicating authority.
Insolvency Professionals : Professionals like CAs, CS, and Lawyers can participate in the institutional framework by registering themselves as Insolvency professionals. Insolvency professionals are intermediaries who perform a key role in the efficient working of the bankruptcy process.
They will be the ‘ Resolution professional’ for administering the IRP. During the resolution process, they will take over the debtor’s management , verify the creditors claims, constitute a creditors committee and help creditors to arrive at a revival plan. In case of liquidation, they will act as liquidator and bankruptcy trustee.
Considering the scope of the work to be performed by the professionals, there are regulations that govern the appointment of a CA, CS or Lawyer as Insolvency Professional.
Professionals who register themselves will be a key pillar in the functioning of this institutional infrastructure. The code is expected to infuse oxygen into the much stressed banking system as it provides for early identification and resolution of financial distress, with a shift to a creditor driven perspective. This is expected to bring a quantum leap to the functioning of credit market. Effective implementation of the code will give a big boost to the ease of doing business in India.