Before engaging in deeper content of the topic, let’s polish some basics of insolvency and bankruptcy. A person can be insolvent without being bankrupt contrary to that a person can’t be bankrupt without being declared insolvent.
Muddled so far?
Many people think the two terms have the same meaning, but they are very dissimilar. Insolvency is a problem that bankruptcy is medium to rectify that situation.
Insolvency is the incapability to repay arrears when they become due. Providentially, there are resolutions for curbing insolvency, including borrowing or improvising cashflow so that repayment of debt becomes feasible. A person can also negotiate repayment with creditors which is known as a resolution plan according to IBC.
Bankruptcy is usually an ultimate alternative when a resolution plan is rejected by creditors. It can also become an alternative when other efforts to repay the debt fail. The bankruptcy process is a court’s judgment determining ways to clear the debt obligations of a debtor. That generally involves selling assets to pay the creditors and erasing debts that can’t be paid.
Insolvency can lead to bankruptcy if the debtor is incapable to successfully resolve its pecuniary condition.
To streamline the process of insolvency and bankruptcy a new rule was codified. It was known as the INSOLVENCY AND BANKRUPTCY CODE, 2016. IBC 2016 lays down various rules and regulations and procedures to ease the proceedings under bankruptcy.
IMPACT OF IBC ON THE INDIAN INDUSTRIES:
After the enactment of Goods and Services Tax, IBC is the second most crucial and vital modification in the legal setting of India.
IBC is making India ardently powerful in the legal environment. It also offers a new identification on the global platform economically. On both economic and non-economic platforms, this rule has had a positive influence.
Since the enactment code, the global economic image of India is radically high. Through Augmentation of the Foreign Direct Investment, improving India’s affluence of business ranking, there is a substantial increase in mergers and acquisition deals which provides a vast avenue for Indian industries to expand and grow. etc.
LET’S REFER TO FEW REASONS TO WHY THIS CODE HAS IMPROVED THE SYSTEM FOR PROCEEDING OF BANKRUPTCIES, UNLIKE SICA ACT:
- Under the IBC act, a bankrupt company is a corporate debtor who has been adjudicated insolvent and bankrupt by NCLT bypassing such order.
- It may sound harsh but no economy can flourish if they cannot figure out how to deal with failed companies and piling non-performing assets. If opting to resolve this in court it would take a lot of litigation costs and years which nobody wants to face. IBC provides for an easy, lucrative and speedy process for resolution of insolvent entities by early identification of problems before they get to the core.
- Before the introduction of insolvency and bankruptcy code, the time taken for winding up proceedings was over 4 years. But now under the IBC Code, this time has been abridged to only one year which is substantial time and cost-saving.
- Through a speedy resolution process, the Code had one vital aim – to tackle the issue of increasing and unresolved NPA’S amount to approximately 10 trillion in the Indian banking system. Resolving this will give rise to new investments and resulting economic growth.
- The introduction of IBC became a game-changer with BHUSHAN STEEL becoming the first resolved case under IBC in May 2018.
IBC was one of the key factors for India’s rise on the World Bank’s metrics of Ease of Doing Business Ranking to 100 in 2017 from 130 the previous year.
- These incentives aided with the rise of buying business and exit opportunities in India. the IBC has recovered more than 3 lakhs crores of debt after its enactment in 2016. Out of which:
- 1.2 lakhs crores at the pre-admission stage: even before the recognization of the insolvency petition
- 1.2 lakhs crores from resolved cases
- 60,000 crores from NPA’S.
- The Code should be a major driver in a spurt of merger and acquisition deals in India. As bidders are keenly looking to obtain assets that are now available at money-spinning prices. Several such entities also are close to the conclusion of their resolution processes.
Insolvency and Bankruptcy Code brought quite a few positive variations and reforms in the business setting in the country. Brought forward many changes that will eventually lead our country towards a developed economy. However, many changes are yet to come which will bring out the best in our system. The best we can do is make sure that our finances are in order and we never go insolvent.