India passes bankruptcy code

Dino D'Amore
By Dino D'Amore May 12, 2016 18:12

India passes bankruptcy code

India’s Parliament has passed the much-awaited bankruptcy code. Once the Insolvency and Bankruptcy Code 2016 is signed by the president, the country can begin to make it easier to recover debts and wind up failing companies. The new Bankruptcy Code consolidate the numerous insolvencies laws into one framework and create a new institutional structure. Two new entities will rule over bankruptcy cases: The National Company Law Tribunal, for companies and limited liability partnerships, and the Debt Recovery Tribunal, which will act on individual and partnership firms’ insolvencies. A third new entity, the Insolvency and Bankruptcy Board of India, will regulate insolvency professionals and information companies.

The new law states that an insolvency resolution plan has to be approved by 75% of voting-share creditors, which will then need to be sanctioned by the adjudicating authority. During the resolution period, the management of the debtor is placed in the hands of an resolution professional. The code proposes to protect the workers in case of insolvency, paying their salaries for up to 24 months which will get first priority during the liquidation of assets.

The new law states that in the case of a default, the bankruptcy process should take no longer than 180 days, which can only be extended by another 90 days by the adjudicator.

Although the new code has been passed, it will take a long time for the infrastructure to be put in place and to create the pool of insolvency professionals required for its implementation.

The new law should provide an additional boon for aircraft leasing companies, which have been impacted by airline failures in the country, Kingfisher being the most recent. Because the new law gives unpaid employees a chance to initiate bankruptcy proceedings, disgruntled Kingfisher employees would have had their claims over unpaid wages heard alongside creditors. The airline would have entered insolvency proceeding much earlier and just may have been able to resolve its issues and keep flying, maybe. Hindsight is a beautiful thing but this new bankruptcy code does give some comfort for the industry as the aviation market’s potential has not diminished.

Dino D'Amore
By Dino D'Amore May 12, 2016 18:12