Bankruptcy code to enhance ease of doing business

The Dollar Business Bureau

The bankruptcy code was cleared by the Rajya Sabha on Thursday while the Lok Sabha had cleared the Insolvency and Bankruptcy Code last week. Clearing of these codes is likely to promote jobs, increase the availability of credit and identify the financial distress of companies, the Finance Ministry said on Friday.

Hailing the bankruptcy code as the next "biggest economic reform" after yet-to-be- cleared Goods and Services Tax (GST), the Finance Ministry said, “The objective of the new law is to promote entrepreneurship, availability of credit, and balance the interests of all stakeholders by consolidating and amending the laws relating to reorganisation and insolvency resolution in a time bound manner.”

The new arrangement will enable information utilities to collect, authenticate and disseminate financial data, to be used in bankruptcy, insolvency and liquidation proceedings. It will also enable provisions to deal with cross-border insolvency.

Several political stalwarts, global and domestic organisations and financial analysts also praised the government’s decision saying the development comes at an ideal time, since it has been making relentless efforts to make India a business-friendly nation.

 The social media has been abuzz with ministers praising the government’s decision.

"History is written today as Rajya Sabha passes Bankruptcy Bill! Thank you to MPs and officers who worked on the bill," MoS for Finance Jayant Sinha said in a tweet.

"Bankruptcy code: Will make India a more attractive investment destination and greatly improve ease of doing business," tweeted Economic Affairs Secretary Shaktikanta Das.

“The Bankruptcy bill will look to fuse existing laws around insolvency of companies. It sets the time limit for the insolvency resolution to 180 days, thereby allowing lenders to take decisions on the sustainability of the business,” said Vikram Babbar, Executive Director, Fraud Investigation & Dispute Services, E&Y.

Babbar said the inclusion of insolvency professionals will add credibility to the process. It will speed-up defaulters’ winding up processes and enable a faster exit route for lenders. He, however, cautioned that identifying the borrowers’ true intent and safeguarding assets would be a key to its successful implementation.

US-India Business Council (USIBC) President Mukesh Aghi said, “The passage of this Bill will establish an entrepreneur-friendly legal bankruptcy framework for speedy, efficient and consistent resolution of insolvencies for companies and individuals.”

The new law envisions to encourage entrepreneurship and innovation on a greater scale. With this arrangement in place, entrepreneurs and lenders will now be able to move on from their business failure, instead of being bogged down as they were earlier.