Joint committee cuts timeline from 60 to 45 days; suggests shield for employees
Those filing for bankruptcy could find their assets in other countries assessed under Indian laws, if India implements the suggestions made by a parliamentary joint committee on the bankruptcy code.
The joint committee on the insolvency and bankruptcy code has said since 'many corporate transactions and businesses today involve an international and cross-border element, the implications of cross-border insolvency cannot be ignored for too long.'
The panel has suggested two new clauses and sub-clauses, which would require India to enter into agreements with foreign governments to enforce provisions of the code to debtors’ assets outside India as well.
In its report, the panel said if a resolution professional or bankruptcy trustee decides that a debtor’s assets located abroad should be brought under the ambit of the law, then the adjudicating authority in the case should issue a letter of request to a court or an authority of the country in question.
The draft bankruptcy Bill had no provision for cross-border insolvency, as the Bankruptcy Law Reforms Committee and the finance ministry representatives had called the issue quite “complex” in their deliberations with the parliamentary panel.
The draft Bill was made available in the public domain in November 2015, along with the report of the BLRC. It was presented in the Lok Sabha on the penultimate day of the winter session and immediately sent to a joint committee of both Houses.
The committee comprises 20 members of the lower and 10 members of the upper Houses, respectively. It is headed by Rajya Sabha member Bhupender Yadav.
It has also decided to cut the timeline for various processes “during the course of insolvency, liquidation and bankruptcy”, suggesting suggested that the time for filing an appeal in the Supreme Court against the order of the National Company Law Tribunal should be brought down to 45 days from the proposed 60 days.
The parliamentary panel also said since a bankrupt entity’s workers were some of the worst affected, their outstanding dues for a preceding period of 24 months should be given priority above all other debt.
The draft Bill had this provision at three months, while the final Bill had provided for 12 months.
“Workers are the nerve centre of any company. In the event of any company becoming bankrupt, the workmen get adversely affected and, therefore, priority has to be given to their outstanding dues,” the panel said.
The panel also said operational creditors of an entity, such as workers, employees and suppliers, are not given any representation in the proposed committee of creditors which will deal with the bankruptcy proceedings.
“The committee is of the view that, if not voting rights, operational creditors at least should have presence in the committee of creditors to present their views on important issues,” the report said.
The panel also said the debtor’s outstanding dues to employees’ provident funds, pension funds and gratuity funds will not be included in the liquidation estate assets of the bankrupt so that these dues can be fulfilled.
The bankruptcy law, which Finance Minister Arun Jaitley hopes will be passed in the ongoing Budget session, is a key part of the Prime Minister Narendra Modi-led government’s plans to improve India’s rankings in the 'ease of doing business' index.
The Bill provides for a speedy process and a timeline of six to a maximum of nine months to deal with insolvency and enable winding-up of operations of a company or a limited-liability entity.
It also proposes early identification of financial distress so that steps can be taken to revive an ailing company.
Among other recommendations, the Bill suggests an insolvency regulator, for oversight over professionals in this regard.
It lays down a transition provision during which the central government will exercise all the powers of the regulator till the time one is set up.
“This will enable quick starting of the process on the ground, without waiting for the proposed institutional structure to develop,” the report states.
The Bill recommends the existing Debt Recovery Tribunals be the adjudicating authority for individuals and unlimited liability partnership firms.
The National Company Law Tribunal could serve as one for companies and limited-liability entities. It also proposes setting up of information utilities, to collect and collate financial information from listed companies and their creditors.
IN THE FAST LANE
The parliamentary joint committee on the bankruptcy code has recommended significant changes to the Bill Cross-border insolvency
No provision. Bankruptcy Law Reforms Committee had called it the “next frontier”, planned to take up this work in the next stage of deliberations
Committee suggests two clauses and two sub-clauses to deal with cross-border insolvency, including entering agreements with other nations and specifying, on a case-to-case basis, if a debtor’s assets outside the country should be brought under ambit of lawWorkers’ outstanding dues
Wages and unpaid dues payable to workmen of the bankrupt for the whole or any part of the period of three months before the bankruptcy commencement date should be prioritised (later increased to 12 months)
Panel recommends increase in this clause to 24 months and says that workers get adversely affected if a company goes bankrupt
(Workers, employees, suppliers)
Given no representation in committee of creditors
Suggests if not voting rights, they should at least have a presence in committee of creditors
Continuance of proceedings on death of bankrupt
If bankrupt dies, the bankruptcy proceedings shall, unless the Adjudicating Authority directs otherwise, be continued as if he were alive
Panel says not inclined to give discretion on the matter to adjudicating authority. Suggests deletion of works