October 3, 2021 2:09:44 am
The next phase of India’s insolvency regime should be the commencement of personal insolvency provisions and a greater emphasis on a more informal process for resolving insolvency, outgoing Insolvency and Bankruptcy Board of India (IBBI) Chairperson MS Sahoo told The Sunday Express.
Sahoo, who demitted office on October 30, has headed the IBBI since its inception and was the first Chairperson of the regulator which has played a key role in setting up the rules and regulations for insolvency proceedings under the Insolvency and Bankruptcy Code (IBC) and regulating insolvency professionals and information utilities. The outgoing IBBI chief said the next phase of the implementation of the IBC should include “individual insolvency with provisions for a fresh start and an informal approach to insolvency resolution, moving away slightly from court proceedings.”
The IBC does have provisions for a “fresh start” scheme for individuals with debts of up to Rs 35,000, gross annual income under Rs 60,000, total assets of under Rs 20,000 and do not own a home. The process would allow such persons who are unable to pay off their debts to be discharged of their liabilities.
Individual insolvency proceedings for personal guarantors to corporate debtors under the IBC have commenced, however individual insolvency of partnership and proprietorship firms as well as or other individuals has not yet been brought into force.
Sahoo noted the next phase of IBC would require improvement in “capacity, conduct and approach” of all players involved in the insolvency process, including committee of creditors (CoCs) and insolvency professionals. He added that considering an informal approach to insolvency resolution may yield better results.
The government has introduced a pre-packaged insolvency resolution process for MSMEs, aimed at faster resolution for distressed companies. Under this, financial creditors will agree to terms with promoters or a potential investor, and directly seek approval of the resolution plan from the National Company Law Tribunal (NCLT) avoiding a prolonged litigation process that often occurs under the Corporate Insolvency Resolution Process (CIRP). The Centre plans to eventually extend pre-packaged insolvency resolution process to larger corporations.
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