Welcome move on Bankruptcy Code – But why not have a US Chapter 11-equivalent in the bankruptcy code?

The proposed law calls for a new breed of professionals in i ndia, who, it imagines, will be better placed to run a troubled company than its failed managers. Corporate salvage as in Satyam was done by professional managers, not any specialised cadre of insolvency professionals. i t is not obvious that every company will gain by the failed management being booted out and replaced with professional managers.

A key provision is a limited window of opportunity: 180/270 days, failing which the company is liquidated. This makes eminent sense as an indefinite respite, allowed now in i ndian laws, leads to misuse. t he draft Bill sets a clear process to identify financial distress early on and prescribes swift resolution. a majority of 75% of voting share of the financial creditors must approve the plan.

The final decision to accept or reject the insolvency resolution plan rests with the adjudicating authority: d ebt r ecovery t ribunals for individuals and unlimited liability partnership firms, and the National Company Law t ribunal for companies and limited liabilities. t he Bill allows only individuals to financially start afresh, but expeditious order of discharge to creditors will also facilitate fresh start for companies.

The national Company Law tribunal, that will replace the BIFR , will speed up winding up companies and ease the burden on high courts. t he government should remove the legal hurdles in the way of operationalisation of the tribunal, and set up benches fast. a functional legal system is an imperative necessity for the bankruptcy code to work. t he courts should not accept every petition challenging the order of an appellate authority, and make its ruling redundant.