It has been five years since the Insolvency and Bankruptcy Code 2016, a statute created to codify the framework of the existing insolvency and bankruptcy laws, was adopted. If you’re a corporate entity or an individual struggling with debt resolution concerns, getting a brief overview of the code intended to provide legal assistance in such circumstances is certainly beneficial for you.
Insolvency Resolution Process Under Bankruptcy and Insolvency Code
Firstly, the Code has helped reduce the time required to resolve an insolvency crisis on average from 1500 days to 380 days! According to the IBBI, the legislation has given financial creditors a staggering 191% realisation compared to the liquidation value. 4008 insolvency applications have been submitted to date, of which 277 have been completed under CIRPs, more than 250 corporate entities have been revived, and 1025 companies have been placed in liquidation.
But the true story is how thousands of operation creditors were granted a lifeline, and more than 250 enterprises were revived, saving thousands of job losses, NPAs, and losses worth lakhs of crores for the economy. In the worldwide index of ease of doing business, the Code has also assisted India in moving up one spot, from 134th to 62nd. However, this is just the beginning; there are still more advantages to come.
Before the Bankruptcy and Insolvency Code was implemented in 2016, the process of resolving bankruptcy cases was dispersed, protracted, futile, and uneconomical. The fact that IBC was implemented by repealing two laws and amending 11 other legislations shows how many laws regulated the insolvency proceedings. The procedure is simplified, time-bound, and provides an all-inclusive solution thanks to the Code.
It goes without saying that the Code’s primary objective is to help distressed debtors. The Code is a unique example of how company regulatory laws. It have changed from reactive to proactive, from post-mortem analysis to proactive business revival. It recognises that “insolvency” refers to a situation where assets are inadequate to cover liabilities. And that untreated insolvency will result in “bankruptcy” (for non-corporate entities) and “liquidation” (for corporates).
To avoid this, the Bankruptcy and Insolvency Code establishes a time-bound insolvency resolution procedure that must be finished in 330 days, including any litigation. However, the actual average is closer to 380 days since judicial procedures take longer than expected.
Benefits of Insolvency and Bankruptcy Code
The Insolvency and Bankruptcy Code effectively address a number of flaws in the previous bankruptcy resolution procedure, including:
Timely Resolution of the Insolvency Process
The resolution process is time-bound, and the business is transferred to the resolution applicant as an ongoing concern. Hence, this ensures that there is no loss to the economy from a halt in production or under-utilisation of resources. There is minimal loss of employment, revenues to the government, the local ecosystem, and supporting industries.
A Clear and Certain Title
The settlement of liabilities and ownership of assets is assured when insolvency is handled under the Code. The resolution applicant now possesses a clear and litigation-free company, assets, and more. Since all liabilities, including government dues, have been paid.
Prevents Debtors from Engaging in Fraudulent Activities
The debtor is prohibited from engaging in any activity intended to defraud. The creditors because ownership and control of the business entity, its assets. Its business activities stand transferred from the debtor to an insolvency professional as soon as the adjudicating authority.
Compare this to the previous scenario, in which the debtor maintained control over company operations and assets. This allowed him to drag things out, prolong resolution by suing endlessly, and illegally dispose of assets in order to mislead creditors, workers, the government, etc.
Relieve Bona Fide Debtors
Before the Bankruptcy and Insolvency Code, the debtors’ unpaid liabilities from the proceedings followed them for the remainder of their lives. However, resolution under the Code ensures complete payment of all debts. Releasing bona fide debtors from debt traps and any government liabilities.
Conclusion
In essence, the Code offers a more effective replacement for the outdated and untenable insolvency resolution process. Additionally, with the functioning insolvency technology tools, the IBC code can be accurately implemented within the designated period.
