Insolvency & Bankruptcy Code

Insolvency & Bankruptcy Code

Context:

  • Supreme Court judge Justice Sanjay Kishan Kaul credited India’s rise in the ‘Ease of Doing Business’ index to the introduction of the Insolvency and Bankruptcy Code (IBC), calling it a dynamic law that adapts to the “realities of the Indian society”.

About IBC:

  • Insolvency is a situation where individuals or companies are unable to repay their outstanding debt.
  • The Insolvency and Bankruptcy Code, 2016 (IBC) was enacted in 2016, against the backdrop of mounting non-performing loans.
  • The poor performance of older loan recovery mechanisms such as the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI), Lok Adalats, and Debt Recovery Tribunals prompted the enactment of IBC.

Objectives:

  • To save a business as a going concern, through restructuring, change in ownership, mergers and other methods (resolution)
  • To maximize the value of assets of the corporate debtor
  • To promote entrepreneurship, availability of credit, and balancing the interests
  • IBC aims to establish a consolidated framework for insolvency resolution of corporations, partnership firms and individuals in a time-bound manner.
  • Under IBC, the insolvency regime shifted from ‘debtor-in-possession’ to ‘creditor-in-control’ thus ensuring business continuance.

Procedure Involved:

  • If a corporate debtor (CD), or a business that has borrowed money to operate, does not repay the loan, either the creditor (a bank or other organisation that has lent money for operational purposes) or the debtor may file an application under Section 6 of the IBC to begin a Corporate Insolvency Resolution Process (CIRP).
  • Prior to the pandemic, there was a 1 lakh rupee threshold after which a creditor or debtor could file for insolvency.
  • However, the government raised this threshold to 1 crore in response to the strain the pandemic was putting on businesses.

 Source The Hindu

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