In a move towards making it easier to do business in the country, a government-appointed committee has called for an effective corporate insolvency regime that would require “substantive changes to Companies Act 2013 and also certain institutional and practice related changes”.
The TK Viswanathan committee that was set up in October last year to frame a bankruptcy law to enable faster closure of businesses, has submitted its report to the finance ministry that has suggested amendments to the Companies Act to allow creditors to initiate rescue proceedings against debtor companies.
It has suggested that secured creditors as well as unsecured creditors that represent 25 per cent of the debt of the company can initiate such proceedings. Further, it has also sought reducing the timeline and considering the viability of the firm for determining whether it can be rescued or liquidated.
“By the amendment, a decision on whether the sick company should be rescued or whether winding up proceedings should be initiated can be taken within two months of filing of the initial application as against the presently contemplated five months or longer,” the report said.
The committee has also called for developing appropriate criteria for determining when a company is ‘unable to pay debts’ for the purposes of winding up and liquidation of companies due to insolvency.
The move would go a long way in improving India’s rankings in the Doing Business report, which places it at 137 out of the 189 economies for resolving insolvencies. An average of 4.3 years required to resolve insolvency.
The finance ministry has now sought public comments on the report and a Bill could be tabled in Parliament over the next few months. Sources said a formal announcement on the issue is expected in the Union Budget later this month.
The Bankruptcy Law Reform Committee has also identified amendments required to comply with the judgements of the Supreme Court in relation to the National Company Law Tribunal (NCLT). It has also called for developing an ‘Insolvency Code’, given the multiplicity of laws and adjudicatory forums governing insolvency matters in the country.