1)
Facts
:
i.
as per the recent Doing Business, 2015 Report, India is ranked 134
on the ease of doing business and at 137 for resolving insolvencies.
ii.
The average time taken for insolvency proceedings in India is
about 4.3 years, while it is only 1.7 years in high-income OECD countries.
iii.
The recovery rate (cents on the dollar) is 71.9 in high-income
OECD countries as opposed to 25.7 in India.
2)
The
budget has identified reform in bankruptcy laws as
a key priority, envisaging legal clarity and speedy processes that will
ultimately ease doing business in India.
3)
A new bankruptcy law coupled with practical changes, removing
the judicial bottlenecks and delays, will be crucial to the reform process.
4)
The connection between better insolvency laws and economic
growth is straightforward: stronger bankruptcy laws :-
i.
protect the rights of borrowers and lenders
ii.
promote predictability and clarify the risks associated
with lending
iii.
make the collection of debt through bankruptcy proceedings more
attractive
5)
The above factors ultimately facilitate credit and thus a higher
flow of capital in the economy.
6)
The Bankruptcy Law Reform
Committee set up by the Ministry of Finance in August 2014 will be crucial to
the new legislation promised in the Budget. The Interim Report of the Committee
was released in February 2015.
7)
The Committee sees the early recognition of financial distress
and timely intervention as key features of efficient rescue regimes. An
unviable company should be liquidated as soon as possible to minimise losses
for stakeholders.
8)
They recommend that secured creditors be allowed to file an
application for the rescue of a company at a sufficiently early stage, rather
than wait for the company to have defaulted on 50 per cent of its outstanding debt,
as currently provided for in the Companies Act, 2013.
9)
Unsecured creditors representing 25 per cent of the debt be
allowed to initiate rescue proceedings against the debtor company.
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