New bankruptcy code to speed up loan recovery

A parliamentary panel has cleared the bankruptcy bill after a four-month review, recommending amendments to laws to let creditors recover debt without long delays and go after foreign assets of defaulters who have so far managed to stay out of reach.

The Joint Committee of Insolvency and Bankruptcy Bill, headed by BJP MP Bhupender Yadav, has recommended several disqualifications, including from being elected to any public office through elections or in any local authority. If the recommendations are incorporated in the revised bill, expected to be tabled during the current session of Parliament, the ban could extend to people contesting elections for municipal bodies, state assembly and Parliament.

The bill provides for setting up of an insolvency regulator, which would have representatives from government and the central bank, and oversee and regulate insolvency agencies.

The National Company Law Tribunal would, under the code, address grievances relating to insolvency, bankruptcy and liquidation of companies. Debt Recovery Tribunals would deal with individual cases.

Their decisions could be challenged in appellate tribunals and before the Supreme Court.

The government plans to repeal an ineffectual, century-old insolvency law and amend 11 laws currently dealing with loan defaulters, significantly strengthening banks' ability to resolve a Rs70,000-crore (nearly $100 billion) bad loan muddle.

The proposed Insolvency and Bankruptcy Code, which may soon get Parliament's approval, would help banks speed up debt recoveries and restructurings of bad debt.

Once fully implemented, the code would seek to speed up debt recoveries and restructurings by setting a deadline of 180 days to decide the fate of a company that defaults.

The code will apply to companies, partnerships, limited liability partnerships, individuals and any other body specified by the government.

For companies, the resolution process will have to be completed within 180 days, with an extension of up to 90 days if 75 per cent of creditors agree.

The process will involve negotiations between the debtor and creditors to draft a resolution plan. If they agree, the plan could be submitted to the authority. If no agreement is reached, the company would automatically go into liquidation.

The process will be managed by a licensed insolvency professional who will also control the assets of the debtor during the process.

The code plans to set up information utilities to collect, collate and disseminate information to facilitate insolvency proceedings.

For individuals the process could be initiated either by the debtor or the creditors.

A debtor could be jailed for up to five years for concealing property or defrauding creditors.