The government will introduce a comprehensive bankruptcy Bill in Parliament on Monday, a move that could allow faster unlocking of stressed corporate assets and boost creditors’ ability to recover debts.
“The finance minister will introduce the Insolvency and Bankruptcy Bill in Parliament tomorrow,” economic affairs secretary Shaktikanta Das tweeted on Sunday.
The Bankruptcy Law Reforms Commission led by former law secretary TK Viswanathan, which submitted a draft law to the minister on November 4, has proposed ways to check the delaying tactics of corporate borrowers and help lenders to take management decisions in defaulting companies to trigger business recovery and in cases where it is not possible, liquidation.
Promoted as the next biggest reform after the proposed goods and services tax (GST), the proposed modern law will meet global standards and provide necessary judicial capacity. It will likely deal within 180 days the insolvency cases.
Importantly, the Commission also has proposed greater rights for unsecured creditors or bondholders who currently have no access to a borrower’s collateral.
This would help in deepening the corporate bond market, which can facilitate long-term financing of infrastructure projects, besides encouraging debt funding by private equity and venture capital funds who would often like to complement their equity exposure in firms by extending loans.
Bankruptcy law is one of the areas identified by Prime Minister Narendra Modi for reforms in order to improve the ease of doing business in India. The Companies Act, 2013, which came into being when the UPA was in power, includes a chapter on insolvency providing for, among other things, secured creditors to be consulted and involved in the concerned firm’s management and initiate restructuring/liquidation. But these provisions have remained inoperative thus far for want of the rules there under.