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Insolvency and Bankruptcy Code, 2016 – Boon or Bane for Investments

Impact of Insolvency and Bankruptcy Code, 2016 on Businesses and Investments that entrepreneur must be aware of.
BY Akshay Arora
Feature Writer, BusinessEx
Jun 27,2017

Insolvency and Bankruptcy Code,2016 is an act to consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximisation of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in the order of priority of payment of Government dues and to establish an Insolvency and Bankruptcy Board of India, and for matters connected therewith or incidental thereto.

Insolvency and bankruptcy code, 2016 seeks to achieve certainty and enforcement proceedings which will specifically help creditors and investors interests. Boon in investment will be seen especially from international investors primarily by virtue of this code which leads to a reduction in investment risk and protects the interest of investor in India.

It would be beneficial for businesses to generate capital funds through investments but they have to be fully aware of the fact to return dues on time in order to safeguard their firm from insolvency and bankruptcy.

Key changes introduced by this code that businessman and investors must know about are:-

  • Establishment of Insolvency and Bankruptcy Board of India (IBBI) to regulate IP and IU and promote transparency in government.
  • Regulation of insolvency professionals (IP) and insolvency professional agencies to develop professional standards, code of ethics and exercise a disciplinary role.
  • Insolvency information utilities (IU) will be set up that are specialised licensed bodies which will collect, collate, authenticate and disseminate information relating to indebtedness of the company. An individual database is also proposed to be set up to provide insolvency status of individual firms.
  • Insolvency adjudicating authority will exercise jurisdiction over the case by or against the debtor. The Debt Recovery Tribunal will be adjudicating authority with jurisdiction over individuals and partnership firms other than limited liability partnerships and appeals from DRT will lie to the Debt Recovery Appellate Tribunal (DRAT). For companies other than limited liabilities adjudicating authority will be National Company Law Tribunal (NCLT) and appeals from NCLT will lie to the National Company Law Appellate Tribunal (NCLAT).
  • Strict timelines for resolution of insolvency and liquidation proceedings will take place under this code.
  • The code provides for an automatic moratorium of 180 days and sometimes in exceptional cases a further period of 90 days is granted against any debt recovery actions by the creditors.
  • If the company is claimed insolvent then liquidation of assets takes place in which all the assets of the company will be distributed to creditors. Distribution is done on the basis of the priorities set under this code.
  • In a case of enforcing the code on assets situated outside India, a letter of request must be issued by adjudicating authority to a competent court of the foreign country where an asset is situated then the only asset can be dissolved.
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