Insolvency and Bankruptcy Code
Q. Which of the following is/are true regarding features of the Insolvency and Bankruptcy Code?
1) There would be two distinct processes for resolution of individuals, namely- ‘Fresh Start’ and ‘Insolvency Resolution’.
2) Debt Recovery Tribunal and National Company Law Tribunal to act as Adjudicating Authority.- Published on 16 May 16a. Only 1
b. Only 2
c. Both 1 and 2
d. Neither 1 nor 2
ANSWER: Both 1 and 2
The salient features of the law are as follows:- Clear, coherent and speedy process for early identification of financial distress and resolution of companies and limited liability entities if the underlying business is found to be viable.
- Two distinct processes for resolution of individuals, namely- “Fresh Start” and “Insolvency Resolution”.
- Debt Recovery Tribunal and National Company Law Tribunal to act as Adjudicating Authority and deal with the cases related to insolvency, liquidation and bankruptcy process in respect of individuals and unlimited partnership firms and in respect of companies and limited liabilities entities respectively.
The essential idea of the new law is that when a firm defaults on its debt, control shifts from the shareholders / promoters to a Committee of Creditors, who have 180 days in which to evaluate proposals from various players about resuscitating the company or taking it into liquidation. When decisions are taken in a time-bound manner, there is a greater chance that the firm can be saved as a going concern, and the productive resources of the economy (the labour and the capital) can be put to the best use. This is in complete departure with the experience under the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA regime) where there were delays leading to destruction of the value of the firm.
