Decoding the insolvency and bankruptcy code

Decoding the insolvency and bankruptcy code

He went on to explain that the Code could be used ‘dangerously’ by wilful defaulters and the like to wriggle out of paying creditors.

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CHENNAI: The Insolvency and Bankruptcy Code (IBC) is a good tool for creditors and a dangerous weapon for defaulters,” said KK Balu, former judge, Company Law Board at the special programme organised by the Indo-Japan Chamber of Commerce and Industry on Friday to assess the impact of the insolvency law on payables and receivables.

He went on to explain that the Code could be used ‘dangerously’ by wilful defaulters and the like to wriggle out of paying creditors. However, he went on to add that the law, though it has some issues, for the most part, has been an effective tool.

“The Act is two years and three months old and in comparison to other forums that have existed for much longer, the IBC has managed to work at jet speed,” he said. “The Supreme Court itself has observed and has given it a good certificate by saying that while other forums are limping, IBC is managing to run. The reason for this is that the process is simple. It calls for settlement of dues formulating an appropriate resolution plan or a change in management of ownership. If all three fail, it proposes liquidation.”

The Supreme Court in January 2019, in the case of the Swiss Ribbons, said the following about the Code, “The insolvency law is proving to be largely successful. The defaulters’ paradise is lost. In its place, the economy’s rightful position has been regained. This law has reversed the trend and mindset of wilful defaulters.”

Corporate lawyer, PS Suman, who was the other speaker at the event lucidly explained what the law entails while also shedding light on the merits and demerits of the current Code.

“About 3,300 cases involving over `1,20,390 crore have been settled out of court between debtors and creditors,” said Suman. “Around 80 cases have been resolved through resolution plans and the amount realised is close to `60,000 crore. Since the threshold set for someone to file a case for default has been set at a low level of `1 lakh, a large number of employees are filing cases against employers for delayed payment of salaries and so on. That is a huge advantage that creditors possess when it comes to the Code but often creditors are not clear about what they want to achieve from filing a case.”

Suman emphasised that it was essential for creditors to be clear about whether they wanted to maintain a relationship with the debtor or recover the money.

“You cannot have both,” he said. “You need to decide what you want more — to recover the money or keep your relationship intact. This is one of the biggest dilemmas that creditors wanting to file cases face. The IBC favours vigilant creditors alone, which means that those with the first mover advantage will definitely gain from the Code. You must catch the default at the earliest and not wait. Remember that the size of the company is immaterial, if they have defaulted on `1 lakh or more, they can be sent a notice under the code. If you are among the first few to file a notice, there are greater chances of settlement and recovering the money.”

Source- New Indian Express.