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22nd April 2022 (7 Topics)

Effective and Efficient: The Insolvency and Bankruptcy Code

The performance of the Insolvency and Bankruptcy Code (IBC) a landmark reform executed during the first term of the Narendra Modi government has been under intense scrutiny.

The Insolvency and Bankruptcy Code

  • Uniform Legislation- The Code offers a uniform, comprehensive insolvency legislation encompassing all companies, partnerships and individuals (other than financial firms). 
  • Creditor’s choice- One of the fundamental features of the Code is that it allows creditors to assess the viability of a debtor as a business decision, and agree upon a plan for its revival or a speedy liquidation.
  • Institutional framework- The Code creates a new institutional framework, consisting of a regulator, insolvency professionals, information utilities and adjudicatory mechanisms, that will facilitate a formal and time bound insolvency resolution process and liquidation.

Benefits of IBC

  • Timely resolution of insolvency process-The process of resolution is carried out in a time-bound manner; the business is transferred as an ongoing concern to the resolution applicant, thus ensuring nil loss to the economy due to stoppage of production or under-utilization of resources, and minimum loss of employment, revenues to government, local ecosystem and ancillary industries.
  • Certainty and clean title-When insolvency is resolved through the Code, there is a certainty in the settlement of liabilities and ownership of assets. Since all liabilities including government dues are settled, the resolution applicant is vested with a clean and litigation-free business and assets, etc.
  • Prevents fraudulent activities by debtors-Since the ownership and control of the business entity, its assets and business activities stand transferred from the debtor to an insolvency professional as soon as an application is admitted by the adjudicating authority, the debtor is pre-empted from indulging in any activity to defraud the creditors.
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